UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
Commission File Number 0-20243
VALUEVISION INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1673770
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6740 Shady Oak Road, Minneapolis, MN 55344
(Address of principal executive offices)
612-947-5200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO ____
As of September 12, 1996, there were 29,888,298 shares of the Registrant's
Common Stock, $.01 par value, outstanding.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
JULY 31, 1996
PART I: FINANCIAL INFORMATION Page of
Form 10-Q
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Item 1. Financial Statements
* Condensed Consolidated Balance Sheets as of July 31, 1996 and 3
January 31, 1996
* Condensed Consolidated Statements of Operations for the Three 4
and Six Months Ended July 31, 1996 and 1995
* Condensed Consolidated Statement of Shareholders' Equity for 5
the Six Months Ended July 31, 1996
* Condensed Consolidated Statements of Cash Flows for the Six 6
Months Ended July 31, 1996 and 1995
* Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
PART II: OTHER INFORMATION 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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Part I. Financial Information
Item 1. Financial Statements
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
JULY 31, JANUARY 31,
1996 1996
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 26,372,637 $ 20,063,901
Short-term investments 48,036,705 26,387,426
Accounts receivable, net 8,234,328 5,130,502
Inventories 10,326,167 8,889,426
Prepaid expenses and other 4,505,336 4,882,453
Deferred taxes 250,000 250,000
------------- -------------
Total current assets 97,725,173 65,603,708
PROPERTY AND EQUIPMENT, NET 12,011,779 13,813,347
FEDERAL COMMUNICATIONS COMMISSION LICENSES, NET 7,083,808 9,312,437
MONTGOMERY WARD OPERATING AGREEMENT AND LICENSES, NET 15,712,553 16,621,255
INVESTMENTS AND OTHER ASSETS, NET 11,234,288 11,918,470
------------- -------------
$ 143,767,601 $ 117,269,217
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 200,00 $ 200,000
Accounts payable 12,141,425 8,770,685
Accrued liabilities 5,225,688 4,197,963
Income taxes payable 4,766,117 350,000
------------- -------------
Total current liabilities 22,333,230 13,518,648
LONG-TERM OBLIGATIONS 305,745 447,430
------------- -------------
Total liabilities 22,638,975 13,966,078
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized;
29,888,298 and 29,343,748 shares issued and outstanding 298,883 293,437
Montgomery Ward common stock purchase warrants;
26,295,349 and 25,770,461 17,500,000 17,500,000
Additional paid-in capital 88,332,038 87,189,939
Net unrealized holding loss on investments available-for-sale (105,682) (184,770)
Retained earnings (deficit) 15,103,387 (1,495,467)
------------- -------------
Total shareholders' equity 121,128,626 103,303,139
------------- -------------
$ 143,767,601 $ 117,269,217
============= =============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 24,340,754 $ 20,467,094 $ 47,128,421 $ 39,726,033
COST OF SALES 14,612,379 12,043,973 28,011,710 23,323,676
------------ ------------ ------------ ------------
Gross profit 9,728,375 8,423,121 19,116,711 16,402,357
------------ ------------ ------------ ------------
Margin 40.0% 41.2% 40.6% 41.3%
OPERATING EXPENSES:
Distribution and selling 7,690,723 7,204,705 15,094,677 13,493,457
General and administrative 1,460,663 1,231,532 2,769,169 2,155,976
Depreciation and amortization 1,371,673 963,274 2,730,390 1,877,272
------------ ------------ ------------ ------------
Total operating expenses 10,523,059 9,399,511 20,594,236 17,526,705
------------ ------------ ------------ ------------
OPERATING LOSS (794,684) (976,390) (1,477,525) (1,124,348)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Gain on sale of broadcast stations -- -- 27,050,000 --
Litigation costs -- (17,000) -- (68,000)
Equity in (losses) earnings of affiliates (95,124) -- (95,124) --
Interest income 1,085,670 441,138 2,158,057 877,704
Other, net 45,582 (19,191) 9,446 (39,057)
------------ ------------ ------------ ------------
Total other income 1,036,128 404,947 29,122,379 770,647
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 241,444 (571,443) 27,644,854 (353,701)
INCOME TAX PROVISION 96,000 -- 11,046,000 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 145,444 $ (571,443) $ 16,598,854 $ (353,701)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON AND
DILUTIVE COMMON EQUIVALENT SHARE $ 0.00 $ (0.02) $ 0.55 $ (0.01)
============ ============ ============ ============
Weighted average number of common shares
and common equivalent shares outstanding 29,576,724 28,001,426 29,996,576 27,996,730
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 31, 1996
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NET
MONTGOMERY UNREALIZED
WARD HOLDING
COMMON STOCK COMMON GAIN (LOSS)
--------------------- STOCK ADDITIONAL ON INVESTMENTS RETAINED TOTAL
NUMBER PAR PURCHASE PAID-IN AVAILABLE- EARNINGS SHAREHOLDERS'
OF SHARES VALUE WARRANTS CAPITAL FOR-SALE (DEFICIT) EQUITY
---------- --------- ----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1996 29,343,748 $ 293,437 $17,500,000 $87,189,939 $ (184,770) $(1,495,467) $103,303,139
Exercise of stock options and
warrants 544,550 5,446 -- 1,142,099 -- -- 1,147,545
Unrealized holding gain on
investments available-for-sale -- -- -- -- 79,088 -- 79,088
Net income -- -- -- -- -- 16,598,854 16,598,854
---------- --------- ----------- ----------- ---------- ----------- ------------
BALANCE, JULY 31, 1996 29,888,298 $ 298,883 $17,500,000 $88,332,038 $ (105,682) $15,103,387 $121,128,626
========== ========= =========== =========== ========== =========== ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED JULY 31,
---------------------------------
1996 1995
------------- -------------
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OPERATING ACTIVITIES:
Net income (loss) $ 16,598,854 $ (353,701)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities-
Depreciation and amortization 2,730,390 1,877,272
Gain on sale of broadcast stations (27,050,000) --
Changes in operating assets and liabilities:
Accounts receivable, net (3,103,826) (198,498)
Inventories (1,436,741) 811,609
Prepaid expenses and other 304,091 (1,367,068)
Accounts payable and accrued liabilities 4,267,757 882,328
Income taxes payable 4,416,117 --
------------ ------------
Net cash provided by (used for) operating activities (3,273,358) 1,651,942
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions, net of retirements (2,724,410) (893,870)
Purchase of broadcast station, including acquisition costs (4,618,743) --
Proceeds from sale of broadcast stations 40,000,000 --
Purchase of short-term investments (60,660,703) (21,785,781)
Proceeds from sale of short-term investments 39,011,424 6,108,042
Payment for investments and other assets (2,141,355) (255,954)
Advance on financing agreement -- (450,000)
Payments of cable launch fees (571,175) --
Proceeds from escrow deposits and claims 281,196 200,000
------------ ------------
Net cash provided by (used for) investing activities 8,576,234 (17,077,563)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 1,147,545 37,969
Payment of offering costs -- (370,361)
Payment of long-term obligations (141,685) (130,500)
------------ ------------
Net cash provided by (used for) financing activities 1,005,860 (462,892)
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,308,736 (15,888,513)
BEGINNING CASH AND CASH EQUIVALENTS 20,063,901 21,655,954
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 26,372,637 $ 5,767,441
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 58,315 $ 69,500
============ ============
Income taxes paid $ 6,638,000 $ --
============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
(UNAUDITED)
(1) GENERAL
ValueVision International, Inc. ("the Company") is a television home
shopping network which uses recognized on-air television home shopping
personalities to market brand name merchandise and proprietary and private label
consumer products at competitive or discount prices. The Company's 24-hour per
day television home shopping programming is distributed primarily through
long-term cable affiliation agreements and the purchase of month-to-month full-
and part-time block lease agreements of cable and broadcast television time. In
addition, the Company distributes its programming through Company owned or
affiliated full-power Ultra-High Frequency (UHF) broadcast television stations,
low-power television (LPTV) stations and to satellite dish owners.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments which, in the opinion of management, are necessary for
a fair presentation of such financial statements. Although management believes
the disclosures and information presented are adequate to make the information
not misleading, it is suggested that these interim condensed consolidated
financial statements be read in conjunction with the Company's most recent
audited financial statements and notes thereto included in its fiscal 1996
Annual Report on Form 10-K. Operating results for the six month period ended
July 31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 1997.
Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform to the fiscal 1997 presentation with no impact on
previously reported net income (loss) or shareholders' equity.
(3) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share based on the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding, if any, during the period. The difference between primary and fully
diluted net income (loss) per share and weighted average number of shares
outstanding was not material or was antidilutive, and therefore not presented
separately.
(4) MONTGOMERY WARD
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward & Co., Incorporated ("Montgomery Ward"),
pursuant to which the companies agreed to the expansion and restructuring of
their ongoing operating and license agreements as well as the Company's
acquisition of Montgomery Ward Direct, a four year old catalog business.
Effective July 27, 1996 the companies reached definitive agreements and closing
is subject to receipt of government approval and the delivery of a Disclosure
Schedule which does not contain any exceptions to the representations and
warranties set forth in the Agreement. Pursuant to the provisions of the
agreements, the Company's sales promotion rights will be expanded beyond
television home shopping to include the full use of the service mark of
Montgomery Ward for direct mail catalogs and ancillary promotions. In addition,
the strategic alliance between the companies will be restructured and amended
such that (i) 18,000,000 unvested warrants held by Montgomery Ward will be
terminated, (ii) the Company will acquire substantially all of the assets and
assume certain obligations of Montgomery Ward Direct, (iii) Montgomery Ward will
commit to providing $20.0 million in supplemental advertising support, (iv) the
Montgomery Ward operating and licenses agreements will be amended and expanded,
as defined in the agreements, and be extended to July 31, 2008 and (v) the
Company will issue to Montgomery Ward new warrants to purchase approximately 3.0
million shares of the Company's common stock at an exercise price of $.01 per
share.
(5) INCOME TAXES
As of January 31, 1996, the Company had net operating loss
carryforwards of approximately $1.8 million for income tax reporting purposes.
The carryforwards were fully realized during the six month period ended July 31,
1996 as an offset to taxable income.
Item 2.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's
accompanying unaudited condensed consolidated financial statements and notes
thereto included elsewhere herein and the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1996.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
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DOLLAR AMOUNTS AS A DOLLAR AMOUNTS AS A
PERCENTAGE OF NET SALES PERCENTAGE OF NET SALES
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
----- ----- ----- -----
NET SALES 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
GROSS MARGIN 40.0% 41.2% 40.6% 41.3%
----- ----- ----- -----
Operating Expenses:
Distribution and selling 31.6% 35.2% 32.0% 34.0%
General and administrative 6.0% 6.0% 5.9% 5.4%
Depreciation and Amortization 5.6% 4.7% 5.8% 4.7%
----- ----- ----- -----
43.2% 45.9% 43.7% 44.1%
----- ----- ----- -----
Operating Loss (3.3%) (4.8%) (3.1%) (2.8%)
===== ===== ===== =====
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
PROGRAM DISTRIBUTION
The Company's programming was available to approximately 13.5 million
cable homes as of July 31, 1996, as compared to 13.6 million cable homes as of
January 31, 1996 and to 12.6 million cable homes as of July 31, 1995. The
Company's programming is currently available through affiliation and time-block
purchase agreements with approximately 250 cable systems and three wholly owned
full- power television broadcast stations. In addition, the Company's
programming is broadcast full-time over nine owned or affiliated low-power
television stations in major markets, and is available unscrambled to homes
equipped with satellite dishes. As of July 31, 1996 and 1995, the Company's
programming was available to approximately 10.8 million and 9.4 million
full-time equivalent cable homes ("FTE"), respectively, an approximate 14%
increase. As of January 31, 1996, the Company's programming was available to
10.5 million FTE cable homes. Approximately 7.6 million and 6.0 million cable
homes at July 31, 1996 and 1995, respectively, received the Company's
programming on a full-time basis. Homes that receive the Company's television
home shopping programming 24 hours per day are counted as one FTE each and homes
that receive the Company's programming for any period less than 24 hours are
counted based upon an analysis of time-of day and day-of week.
NET SALES
Net sales for the three months ended July 31, 1996 (fiscal 1997), were
$24,341,000 compared with net sales of $20,467,000 for the three months ended
July 31, 1995 (fiscal 1996), an 18.9% increase. The increase in net sales is
primarily attributed to the increase in full-time equivalent cable homes able to
receive the Company's programming, which increased approximately 1.4 million or
14.2% from 9.4 million at July 31, 1995 to 10.8 million at July 31, 1996. During
the 12-month period ended July 31, 1996 the Company added approximately 1.6
million full time cable homes. In addition to new homes, sales increased due to
the continued addition of new customers from households already receiving the
Company's television home shopping programming, offset by a slight decline in
repeat sales to existing customers. The slight decline in repeat sales to
existing customers experienced during the first six months of fiscal 1997 was
due, in part, to the effects of continued testing of certain merchandising and
programming strategies during the first quarter of fiscal 1997. Certain changes
were made to the Company's merchandising and programming strategies in the
latter part of the first quarter and during the second quarter, which
contributed to an improvement in sales. The Company intends to continue to test
and change its merchandising and programming strategies with the intent of
improving sales results. However, while the Company is optimistic that results
will continue to improve, there can be no assurance that such changes in
strategy will achieve intended results. As a result of the increased number of
households able to receive the Company's programming, as well as seasonality
factors, the Company anticipates net sales and operating expenses will continue
to increase for the balance of fiscal 1997.
GROSS MARGINS
Gross profit margins for the three and six months ended July 31, 1996
were 40.0% and 40.6%, respectively, compared with 41.2% and 41.3% for the same
periods last year. The gross margins between comparable periods declined
slightly, primarily as a result of increased sales in the second quarter of
traditionally lower margin electronic merchandising categories, such as
computers. The slight decline in gross margins was partially offset by an
increase in gross margin percentages in the jewelry and giftware product
categories, a greater proportion of higher margin non-jewelry products, such as
housewares and seasonal products, offset by a decline in volume of higher margin
jewelry products. During the first six months of fiscal 1997 the Company
continued to broaden its merchandise mix as compared to the same period last
year by expanding the range and quantity of non-jewelry items. As part of the
ongoing shift in merchandise mix, the Company continued to devote program air
time to non-jewelry merchandise. Jewelry products accounted for approximately
70% of air time during the first six months of fiscal 1997, compared with 71%
for the same period last year.
OPERATING EXPENSES
Total operating expenses for the three and six months ended July 31, 1996
were $10,523,000 and $20,594,000, respectively, versus $9,400,000 and
$17,527,000 for the comparable prior-year periods. Distribution and selling
expenses increased $486,000 or 6.7% and $1,601,000 or 11.9% for the three and
six months ended July 31, 1996 over the comparable prior-year periods.
Distribution and selling expenses as a percentage of net sales for the three and
six months ended July 31, 1996 were 31.6% and 32.0%, respectively, versus 35.2%
and 34.0% for the comparable prior-year periods. Distribution and selling costs
increased primarily due to increases in cable access fees resulting from the
growth in the number of cable homes receiving the company's programming,
additional personnel costs associated with increased staffing levels and
additional costs associated with handling increased sales volume. Distribution
and selling expenses declined as a percentage of net sales as the company
continued to leverage its existing operating infrastructure.
General and administrative expenses increased $229,000 or 18.6% and
$613,000 or 28.4% for the second quarter and the six month periods ended July
31, 1996 over the comparable prior-year periods. General and administrative
expenses as a percentage of net sales for the three and six months ended July
31, 1996 were 6.0% and 5.9%, respectively, versus 6.0% and 5.4% for the
comparable prior-year periods. General and administrative costs rose as a result
of increased personnel in support of expanded operations, increased costs
associated with operating broadcast television station WAKC-TV, Akron, Ohio,
prior to its sale, as compared to the same period last year and additional legal
costs incurred relative to clarification of certain cable regulations.
Depreciation and amortization costs for the three and six months ended
July 31, 1996 were $1,372,000 and $2,730,000 versus $963,000 and $1,877,000 for
the comparable prior-year periods. Depreciation and amortization costs increased
$408,000 or 42.4% and $853,000 or 45.4% for the second quarter and the six month
period ended July 31, 1996 over the comparable prior-year periods. Depreciation
and amortization costs as a percentage of net sales for the three and six months
ended July 31, 1996 were 5.6% and 5.8%, respectively, versus 4.7% for the
comparable prior-year periods. The increase in depreciation and amortization is
primarily due to amortization of approximately $900,000 due to the Montgomery
Ward operating agreement and licenses entered into in August 1995 and
amortization of prepaid cable launch fees offset by a reduction associated with
the sale of WAKC and WHAI in February 1996.
OPERATING LOSS
The operating loss was $795,000 and $976,000 for the three months ended
July 31, 1996 and 1995, respectively, and $1,478,000 and $1,124,000 for the six
months ended July 31, 1996 and 1995, respectively. The decrease in operating
loss for the three months ended July 31, 1996 resulted primarily from increased
sales volumes and a corresponding increase in gross profits offset by a rise in
distribution and selling costs due to expanded operations and the Company
continuing to leverage its operating infrastructure. The increase in the
operating loss for the six months ended July 31, 1996 resulted primarily from a
rise in general and administrative and depreciation and amortization expenses as
a result of expanded operations.
NET INCOME (LOSS)
For the three months ended July 31, 1996, net income was $145,000
(break-even on a per share basis on 29,577,000 weighted average shares
outstanding) compared with a net loss of $571,000, or $.02 per share on
28,001,000 weighted average shares outstanding for the second quarter of the
previous fiscal year.
For the six months ended July 31, 1996, net income was $16,599,000 or
$0.55 per share on 29,997,000 weighted average common and common-equivalent
shares outstanding compared with a net loss of $354,000, or $.01 per share on
27,997,000 weighted average shares outstanding for the prior-year period.
Results for the first quarter of fiscal 1997 included a gain of $27,050,000 from
the sale of television stations WAKC and WHAI in February 1996. For the six
months ended July 31, 1996, excluding the gain on the sale of the two television
stations, the Company had net income of $369,000, or $.01 per share. Net income
also reflects an income tax provision of $11,046,000, which results in an
effective tax rate of 40%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of July 31, 1996, cash and cash equivalents and short-term investments
were $74,409,000, compared to $46,451,000 as of January 31, 1996, a $27,958,000
increase. For the six months ended July 31, 1996, working capital increased
$23,307,000 to $75,392,000. The current ratio was 4.4 at July 31, 1996 compared
to 4.9 at January 31, 1996. At July 31, 1996 all short-term investments and cash
equivalents were invested in debt securities with original maturity dates of
less than two hundred and seventy (270) days.
Total assets at July 31, 1996 were $143,768,000, compared to $117,269,000
at January 31, 1996. Shareholders' equity was $121,129,000 at July 31, 1996,
compared to $103,303,000 at January 31, 1996, a $17,826,000 increase. The
increase in shareholders' equity resulted from net income of $16,599,000 for the
six month period ended July 31, 1996, proceeds received on the exercise of stock
options and warrants of $1,148,000 and an unrealized holding gain on investments
available-for-sale.
For the six month period ended July 31, 1996 net cash used by operating
activities totaled $3,273,000 compared to net cash provided by operating
activities of $1,652,000 for the six-month period ended July 31, 1995. Cash
flows provided by operations before consideration of changes in working capital
items and investing and financing activities was $1,253,000 for the six months
ended July 31, 1996, compared to $753,000 for the same prior-year period. Net
cash used by operating activities for the six months ended July 31, 1996
reflects net income, as adjusted for depreciation and amortization and gain on
sale of broadcast stations, increased accounts payable and accrued liabilities,
offset by funding required to support higher levels of accounts receivable and
inventory. Accounts receivable primarily increased due to timing relative to
receipt of funds from credit card companies, increased sales volume and
increased receivables due from customers for merchandise sales made pursuant to
the "Value Pay" installment pay program. Inventories increased from year end to
support increased sales volume and changes in merchandise mix.
Net cash provided by investing activities totaled $8,576,000 for the six
months ended July 31, 1996 compared to net cash used of $17,078,000 for the same
period of fiscal 1996. For the six months ended July 31, 1996 and 1995,
expenditures for property and equipment were $2,724,000 and $894,000,
respectively. Expenditures for property and equipment during the periods ended
July 31, 1996 and 1995 include (i) the upgrade of broadcast station and
production equipment, studios and transmission equipment and (ii) the upgrade of
computer software and related equipment. Principal future capital expenditures
will be for upgrading television production and transmission equipment, studio
expansions and order fulfillment equipment in support of expanded operations.
During the first quarter of fiscal 1997, the Company received $40.0 million in
proceeds from the sale of two television stations; Akron ABC affiliate WAKC-TV
and independent station WHAI-TV. In addition, during the quarter ended April 30,
1996, the Company paid approximately $3.8 million toward the acquisition of
independent television station KBGE (TV), including acquisition related costs
and paid $800,000 at the second closing relative to broadcast station WVVI (TV).
Net cash provided by financing activities totaled $1,006,000 for the six
months ended July 31, 1996 which is primarily related to proceeds received from
the exercise of stock options and warrants partially offset by an installment
payment made under a five year noncompete obligation entered into upon the
acquisition of a broadcast television. Net cash used for financing activities
totaled $463,000 for the six months ended July 31, 1995, which is related to the
payment of offering costs associated with the Montgomery Ward initial investment
and the payment of the first installment due under the five year noncompete
obligation entered into upon the acquisition of WAKC-TV, Akron, Ohio, partially
offset by proceeds received from the exercise of stock options.
Management believes funds currently held by the Company will be
sufficient to fund the Company's operations, Company common stock repurchased,
if any, pursuant to an authorized repurchase plan, and anticipated capital
expenditures and cable launch fees through fiscal 1997. Additional capital may
be required in the event the Company is able to identify television stations in
strategic markets at favorable prices and determines to acquire up to the
maximum of 12 full power television stations it may own under current
regulations.
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a
"safe-habor" for forward looking statements. Certain information included in
this Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward looking, such as statements relating to
business development activities, capital spending and the effects of regulation
and competition. There are certain important factors that could cause results to
differ materially from those anticipated by such statements. Investors are
cautioned that all forward looking statements involve risks and uncertainty.
The factors, among others, that could cause actual results to differ materially
include: consumer spending and debt levels, interest rates, continuity of
relationships with or purchase from major vendors, product mix, competitive
pressure on sales and pricing, and increases in cable access fees and other
costs which cannot be recovered through improved pricing.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
Part II. Other Information
Item 5. Other Information
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward & Co., Incorporated ("Montgomery
Ward"), pursuant to which the companies agreed to the expansion and
restructuring of their ongoing operating and license agreements as
well as the Company's acquisition of Montgomery Ward Direct, a four
year old catalog business. Effective July 27, 1996 the companies
reached definitive agreements and closing is subject to receipt of
government approval and the delivery of a Disclosure Schedule which
does not contain any exceptions to the representations and warranties
set forth in the Agreement. Pursuant to the provisions of the
agreements, the Company's sales promotion rights will be expanded
beyond television home shopping to include the full use of the service
mark of Montgomery Ward for direct mail catalogs and ancillary
promotions. In addition, the strategic alliance between the companies
will be restructured and amended such that (i) 18,000,000 unvested
warrants held by Montgomery Ward will be terminated, (ii) the Company
will acquire substantially all of the assets and assume certain
obligations of Montgomery Ward Direct, (iii) Montgomery Ward will
commit to providing $20.0 million in supplemental advertising support,
(iv) the Montgomery Ward operating and license agreements will be
amended and expanded, as defined in the agreements, and be extended to
July 31, 2008 and (v) the Company will issue to Montgomery Ward new
warrants to purchase approximately 3.0 million shares of the Company's
common stock at an exercise price of $.01 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Restructuring Agreement made as of July 27, 1996
between Montgomery Ward & Co., Incorporated and
the Company
10(b) Agreement made as of July 27, 1996 between
Merchant Advisors, Limited Partnership, Montgomery
Ward & Co., Incorporated and the Company
11 Computation of Net Income Per Share
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALUEVISION INTERNATIONAL, INC.
/s/ Robert L. Johander
-------------------------------------------
Robert L. Johander
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Stuart R. Romenesko
-------------------------------------------
Stuart R. Romenesko
Senior Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: September 13, 1996
EXHIBIT 10(a)
RESTRUCTURING AGREEMENT
THIS RESTRUCTURING AGREEMENT is made as of July 27, 1996, between
Montgomery Ward & Co., Incorporated, an Illinois corporation ("MW") and
ValueVision International, Inc., a Minnesota corporation ("VVI").
R E C I T A L S
A. Pursuant to a certain Operating Agreement, dated as of March 13,
1995 (the "Original Operating Agreement"), MW and VVI established a strategic
relationship pursuant to which VVI was granted certain rights to use certain of
MW's servicemarks, and MW's private-label credit card, in the field of
television home shopping. Concurrently with the entry into the Original
Operating Agreement, (i) MW and VVI entered into a Servicemark License Agreement
(the "Original Servicemark License Agreement") and a Receivables Sale and
Purchase Agreement (the "Original Receivables Sale and Purchase Agreement"),
which were intended to implement the Original Operating Agreement, and (ii) MW
and VVI entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement"), pursuant to which MW agreed to purchase and VVI agreed to issue
1,280,000 shares of VVI common stock (the "Shares"), and VVI also agreed to
issue a total of 25,000,000 warrants, subject to adjustment (the "Original
Warrants") to MW. For the purposes of this Agreement, the Original Operating
Agreement, the Original Servicemark License Agreement and the Original
Receivables Sale and Purchase Agreement are referred to herein collectively as
the "Original Television Home Shopping Agreements".
B. The closing of the purchase of the Shares and issuance of the
Original Warrants took place on August 8, 1995, at which time the Shares and the
Original Warrants were issued, and MW and VVI entered into (i) a Warrant
Agreement with respect to the Original Warrants (the "Original Warrant
Agreement") and (ii) a Registration Rights Agreement with respect to the Shares
and the shares of stock underlying the Original Warrants (the "Original
Registration Rights Agreement"). The Original Warrant Agreement and the Original
Registration Rights Agreement are referred to herein as the "Original Securities
Related Agreements".
C. Certain subsidiaries of MW are currently the sole partners of
Montgomery Ward Direct, L.P., a Delaware limited partnership ("MWD"). MWD
engages in the direct-mail marketing business.
D. VVI desires to enter the direct-mail marketing business through the
acquisition of the assets of MWD, and to obtain certain additional rights to
conduct said business through an expansion of the Television Home Shopping
Agreements to encompass certain direct-mail activities. MWD and VVI also desire
to make certain modifications to their strategic relationship with respect to
the field of television home shopping. In consideration for the acquisition of
the assets of MWD and the requested modifications of the Television Home
Shopping Agreements, VVI is willing to issue New Warrants (as herein defined) to
MW.
E. Original Warrants of Series' C through O, both inclusive, have not
vested (the "Unvested Warrants"). MW and VVI desire to exchange the Unvested
Warrants for New Warrants, as herein defined.
A G R E E M E N T S
NOW, THEREFORE, the parties agree as follows:
1. Purchase of Assets of MWD. On the Closing Date (as herein defined),
VVI shall cause its wholly owned subsidiary, ValueVision Direct Marketing
Company, Inc., a Minnesota corporation ("VVI Sub") to purchase, and MW shall
cause MWD to sell, substantially all of the assets of MWD, and VVI shall cause
VVI Sub to assume and to discharge when due, certain enumerated liabilities and
obligations of MWD, all as set forth in a certain Asset Purchase Agreement, in
the form attached hereto as Exhibit A (the "Asset Purchase Agreement"). MWD and
VVI Sub shall enter into the Asset Purchase Agreement on the Closing Date. MW
hereby agrees to cause MWD to enter into the Asset Purchase Agreement and
guarantees the full and prompt payment and performance of all obligations of MWD
under the Asset Purchase Agreement. VVI hereby agrees to cause VVI Sub to enter
into the Asset Purchase Agreement and guarantees the full and prompt payment and
performance of all obligations of VVI Sub under the Asset Purchase Agreement.
2. Amendment and Restatement of Agreements. On the Closing Date:
(a) MW and VVI shall amend and restate the Original Operating
Agreement by entering into an Amended and Restated Operating Agreement
in the form attached hereto as Exhibit B;
(b) MW shall cause its subsidiary, Signature
Financial/Marketing, Inc., a Delaware corporation ("Signature") to
enter, and VVI shall enter, into an Agreement in the form attached
hereto as Exhibit C;
(c) MW and VVI shall amend and restate the Original
Servicemark License Agreement by entering into an Amended and Restated
Servicemark License Agreement in the form attached hereto as Exhibit D;
(d) MW and VVI shall amend the Receivables Sale and Purchase
Agreement by entering into a certain letter agreement in the form
attached hereto as Exhibit E;
(e) MW and VVI shall amend and restate the Warrant Agreement
by entering into an Amended and Restated Warrant Agreement in the form
attached hereto as Exhibit F (the "Amended and Restated Warrant
Agreement"); and
(f) MW and VVI shall amend and restate the Registration Rights
Agreement by entering into an Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit G.
The documents referred to in this paragraph 2 are referred to herein
collectively as the "Amended and Restated Documents".
3. Surrender of Warrants. On the Closing Date, MW shall surrender to
VVI all of the Unvested Warrants for cancellation.
4. Issuance of New Warrants. In consideration of:
(a) the acquisition of the assets of MWD pursuant to the Asset
Purchase Agreement, on the Closing Date, VVI shall cause VVI Sub to
deliver to MWD a total of 1,484,993 New Warrants; and
(b) the entry into the Amended and Restated Documents, and the
cancellation and surrender of the Unvested Warrants, VVI shall issue to
MW a total of 1,484,467 New Warrants.
All New Warrants shall contain the terms and features set forth in the Amended
and Restated Warrant Agreement. Concurrently with the issuance of New Warrants,
MW and VVI shall enter into a Pledge Agreement, in the form attached hereto as
Exhibit H, and MW shall deliver to VVI a warrant certificate for 1,637,138 New
Warrants and a stock power with respect thereto, duly executed in blank by MW.
5. Time of Closing; Effectiveness of Closing. The closing of (w) the
purchase of the assets of MWD pursuant to the Asset Purchase Agreement, (x) the
entry into the Amended and Restated Documents, (y) the surrender and
cancellation of the Unvested Warrants, and (z) the issuance of the New Warrants
(the "Closing"), shall all take place concurrently, on the date which is three
business days after the date on which the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
with respect to the acquisition of the assets of MWD shall have expired or been
terminated (the "Closing Date"). MW and VVI shall forthwith make all filings
which are required by them respectively under the HSR Act, and shall request
early termination of the waiting period under the HSR Act. If the Closing shall
occur, it shall be deemed, as among MW, MWD, VVI and VVI Sub, to have occurred
for all purposes as of the commencement of business on July 27, 1996. Without
limiting the generality of the preceding sentence, all income or loss, all cash
receipts and disbursements, and all liabilities of MWD arising, during the
period commencing July 27, 1996 and ending on the Closing Date, shall be for the
sole account of VVI.
6. Conditions of Closing. The Closing shall be subject to the following
conditions:
(a) the waiting period under the HSR Act shall have
expired or been terminated; and
(b) not later than September 15, 1996, MW shall have delivered
to VVI the Disclosure Schedule referred to in Section 4.2 of the Asset
Purchase Agreement (the "Disclosure Schedule"), and the Disclosure
Schedule shall not contain any exception to any of the representations
and warranties of MWD to be made pursuant to Section 4.2 of the Asset
Purchase Agreement which would have a material adverse effect on the
Business (as defined in the Asset Purchase Agreement). VVI shall be
obligated to notify MW not later than five business days after the date
of delivery of the Disclosure Schedule of any such exception. If VVI
shall give any such notice, and if any such exception shall in fact
exist, this Agreement shall terminate.
7. Effect of Termination. If this Agreement shall be terminated by VVI
pursuant to Section 6(b), the transactions contemplated herein shall not occur,
or if the waiting period under the HSR Act shall not have expired or been
terminated on or before September 30, 1996 this Agreement shall automatically
terminate without any liability on the part of either MW, MWD, VVI or VVI Sub.
Termination shall be effective (i) upon delivery of the notice referred to in
Section 6(b), or (ii) on October 1, 1996 in the case of failure of the waiting
period under the HSR Act to expire or been terminated. In such event, the
Original Television Home Shopping Agreements and the Original Securities Related
Agreements shall remain in full force and effect.
8. Notices. All notices, demands, requests or other communications
which may be or are required to be given pursuant to this Agreement or any of
the Related Agreements shall be in writing and shall be personally delivered,
mailed by first-class,registered or certified mail, postage prepaid, or sent by
electronic or facsimile transmission, addressed as follows:
If to VVI:
ValueVision International, Inc.
6740 Shady Oak Road
Minneapolis, Minnesota 55344
Attention: Chief Executive Officer
with a copy to:
Maslon, Edelman, Borman & Brand, a
professional limited liability partnership
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
Attention: William M. Mower
If to MW:
Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attention: General Counsel
with a copy to:
Altheimer & Gray
Suite 4000
10 South Wacker Drive
Chicago, Illinois 60606
Attention: Myron Lieberman
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication which shall be delivered, mailed
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent or received for all purposes at such time as it is delivered to the
addressee or at such time as delivery is refused by the addressee upon
presentation.
9. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if one or more of the provisions of any of such documents
are subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of such documents, which shall be applied and construed
so as to reflect substantially the intent of the parties and achieve the same
economic effect as originally intended by the terms hereof, unless those
provisions which are invalidated or unenforceable are material to the
performance of either party's affirmative or negative obligations under the
relevant agreement, in which case the entire such agreement shall be terminable,
at the option of the party whose rights thereunder have been adversely affected
thereby, provided that such party must exercise its option to terminate such
agreement within ninety (90) days following the date on which such provision is
declared or determined to be invalid, voidable or unenforceable and the other
party must be given sixty (60) days in which to agree to a valid modification of
such agreement which would substantially eliminate such adverse effects.
10. Waivers. Neither the waiver by any party hereto of a breach of or a
default under any of the provisions of this Agreement , nor the failure of any
party hereto, on one or more occasions, to enforce any of the provisions of any
of said documents or to exercise any right, remedy or privilege hereunder shall
thereafter be construed as a waiver of any such provisions, rights, remedies or
privileges hereunder. Any of the terms, covenants, representations, warranties,
or conditions hereof and thereof may be waived only by a written instrument
executed by the party waiving compliance.
11. Exercise of Rights. No failure or delay on the part of any party
hereto in exercising any right, power or privilege under this Agreement, and no
course of dealing between the parties hereto shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any of such documents preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
12. Binding Effect. Subject to the provisions hereof restricting
assignment, this Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and permitted assigns.
13. Entire Agreement. This Agreement, including the Exhibits hereto,
contains the entire agreement between the parties hereto with respect to the
matters contained herein and therein, and supersede all prior oral or written
agreements, commitments or understandings with respect to the matters provided
for herein.
14. Pronouns. All pronouns and any variations thereof used in this
Agreement shall be deemed to refer to the masculine, feminine, neuter, singular
or plural, as the identity of the Person or the context may require.
15. Headings. Section headings contained in this Agreement and the
Related Agreements are inserted for convenience of reference only, shall not be
deemed to be a part of such Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
16. Governing Law. This Agreement, the rights and obligations of the
parties hereto and thereto, and any claim or disputes relating to any thereof,
shall be governed by and construed in accordance with the internal laws of the
State of Illinois, without giving effect to the principles of conflicts of laws
thereof.
17. Execution in Counterparts. To facilitate execution, this Agreement
may each be executed in as many counterparts as may be required, and it shall
not be necessary that the signatures of, or on behalf of, each party, or that
the signatures of all Persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the Persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
18. Assignment. Neither party may assign its rights under this
Agreement without the consent of the other party, which consent may be granted
or withheld in the sole discretion of such other party, except that either party
may assign all of its rights hereunder in connection with a sale or other
transfer of substantially all of its assets, provided that the assignee assumes
all of the liabilities of the assignor hereunder. No permitted assignment shall
relieve the assignor of its obligations (which shall be primary and which may be
discharged in whole or in part by the assignee) under this Agreement. Any
unauthorized assignment and any assignment made in contravention of this Section
18 shall be null and void.
19. Amendments and Modification. This Agreement may only be amended or
modified by a subsequent written agreement by the parties hereto.
20. Construction. This Agreement shall not be construed more strictly
against one party than against the other merely by virtue of the fact that such
document may have been prepared primarily by counsel for one of the parties, it
being recognized that both parties have contributed substantially and materially
to the preparation of such documents.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date first set forth above.
MONTGOMERY WARD & CO., INCORPORATED VALUEVISION
INTERNATIONAL, INC.
BY: /s/ John Workman BY: /s/ Robert L. Johander
-------------------------------- ----------------------------------
John Workman Robert L. Johander
TITLE: Executive Vice President & TITLE: Chairman & Chief Executive
Chief Financial Officer Officer
EXHIBIT A
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") dated as of July 27,
1996, is made by and among Montgomery Ward Direct, L.P., a Delaware limited
partnership ("Seller"), and ValueVision Direct Marketing Company, Inc., a
Minnesota corporation ("Purchaser").
R E C I T A L S
A. Seller is engaged in the specialty direct-mail
catalogue business (the "Business").
B. Seller desires to sell to Purchaser all of Seller's assets,
properties and rights, other than the Excluded Assets, as herein defined (the
"Purchased Assets"), and Purchaser desires to purchase the Purchased Assets, all
on the terms and subject to the conditions contained in this Agreement.
A G R E E M E N T S
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Purchase and Sale of Assets
1.1 Agreement to Purchase and Sell. On the terms and subject to the
conditions contained in this Agreement, Purchaser agrees to purchase from
Seller, and Seller agrees to sell to Purchaser, all of the Purchased Assets.
1.2 Enumeration of Purchased Assets. The Purchased Assets shall include
but are not limited to the following assets owned by Seller:
(a) all cash on hand and in banks, and other depositaries but
in any event in an amount not less than $4,000,000;
(b) all inventory, including, without limitation, raw
materials, work in process, finished goods, service parts and supplies
(collectively, the "Inventory"), including without limitation the
Inventory listed on Schedule 1.2(b);
(c) all furniture, fixtures, equipment, machinery, parts,
computer hardware, racks, pallets, automobiles and trucks and all other
tangible personal property (other than the Inventory) (collectively,
the "Equipment"), including without limitation the Equipment listed on
Schedule 1.2(c);
(d) all leasehold interests in personal property leased to
Seller (the "Leased Personalty"), including without limitation the
Leased Personalty listed on Schedule 1.2(d);
(e) Seller's entire leasehold interest as lessee of that
certain real property commonly known as Interchange Tower, Suite 300,
600 South Highway 169, St. Louis Park, Minnesota 55426 (the "Leased
Premises");
(f) all trade accounts receivable, notes receivable,
negotiable instruments and chattel paper (collectively, the "Accounts
Receivable"), including without limitation the Accounts Receivable
listed on Schedule 1.2(f);
(g) all claims and rights (and benefits arising therefrom)
with or against all persons whomsoever to the extent they are legally
transferable by Seller;
(h) all sales orders and sales contracts, purchase orders and
purchase contracts, quotations and bids;
(i) all Intellectual Property (as herein defined), and all
goodwill associated with the Intellectual Property;
(j) all license agreements, distribution agreements, sales
representative agreements, service agreements, supply agreements,
franchise agreements, computer software agreements and technical
service agreements to the extent they are legally transferable by
Seller;
(k) all customer lists, customer records and information;
(l) all insurance policies;
(m) all rights in connection with prepaid expenses with
respect to the assets being sold hereunder;
(n) all letters of credit, if any, issued to Seller;
(o) all computer software, including all documentation and
source codes with respect to such software and licenses and leases of
software to the extent they are legally transferable by Seller;
(p) all sales and promotional materials, catalogues and
advertising literature;
(q) all rights of Seller under that certain Amended and
Restated Services Agreement, dated as of June 5, 1996 between Seller
and Fingerhut Corporation, a Minnesota corporation ("Fingerhut"); and
(r) all telephone numbers of Seller and all lock boxes to
which Seller's account debtors remit payments.
1.3 Excluded Assets. The Excluded Assets shall consist of the following
items:
(a) all contracts with Seller's Affiliates (as herein
defined);
(b) claims (and benefits to the extent they arise therefrom)
that relate to liabilities other than the Assumed Liabilities (as
herein defined) and assets other than the Purchased Assets;
(c) rights arising from prepaid expenses, if any, with respect
to assets not being sold hereunder;
(d) tax refunds due from federal, state and local taxing
authorities;
(e) Seller's rights under this Agreement;
(f) Seller's partnership agreement, minute and stock record
books, and tax returns; and
(g) the service marks "Montgomery Ward" and "Montgomery Ward
Direct".
ARTICLE II
Assumption of Liabilities
2.1 Agreement to Assume. At the Closing (as herein defined), Purchaser
shall assume and agree to discharge and perform when due, the liabilities of
Seller (and only those liabilities of Seller) which are enumerated in Section
2.2 (the "Assumed Liabilities"). All claims against and liabilities and
obligations of Seller not specifically assumed by Purchaser pursuant to Section
2.2, including, without limitation, the liabilities enumerated in Section 2.3,
are collectively referred to herein as the "Excluded Liabilities." Seller shall
promptly pay and discharge when due all of the Excluded Liabilities.
2.2 Description of Assumed Liabilities. The Assumed Liabilities shall
consist of the following liabilities of Seller:
(a) all liabilities of Seller incurred in the ordinary course
of business which are reflected on or reserved against in the Interim
Financial Statements (as herein defined) which have not been discharged
on or prior to the date hereof, to the extent such liabilities are so
reflected or reserved against;
(b) liabilities of the type described in paragraph (a) of this
Section 2.1 which, in accordance with generally accepted accounting
principles ("GAAP"), were required to be reflected on or reserved
against in the Interim Financial Statements but which were not fully
reflected on or fully reserved against, in an aggregate amount not in
excess of $250,000;
(c) all liabilities of Seller incurred in the ordinary course
of business after the date of the Interim Financial Statements and
prior to the date hereof which have not been discharged on or prior to
the date hereof; and
(d) all executory liabilities of Seller under contracts,
leases and other agreements which are included in the Purchased Assets
and assigned to Purchaser.
2.3 Excluded Liabilities. Notwithstanding Section 2.2 (and without
implication that Purchaser is assuming any liability not expressly excluded by
this Section 2.3 and, where applicable, without implication that any of the
following would constitute Assumed Liabilities but for the provisions of this
Section 2.3), the following claims against and liabilities of Seller are
excluded and shall not be assumed or discharged by Purchaser:
(a) any liabilities to any of Seller's Affiliates;
(b) any liabilities for legal, accounting, audit and
investment banking fees, brokerage commissions, and any other expenses
incurred by Seller in connection with the negotiation and preparation
of this Agreement and the sale of the Purchased Assets to Purchaser or
negotiations or agreements with Fingerhut;
(c) any liabilities of Seller for taxes, other than for sales
taxes collected from customers;
(d) any liability for or related to indebtedness of Seller to
banks, financial institutions or other persons or entities with respect
to borrowed money or otherwise;
(e) any liabilities of Seller under those leases, contracts,
insurance policies, commitments, sales orders, purchase orders and
Permits which are not assigned to Purchaser pursuant to the provisions
of this Agreement;
(f) any liabilities of Seller in connection with or arising
out of the transfer or assignment of any lease, contract, commitment,
or other agreement, including, without limitation, under any computer
software agreement;
(g) any liabilities of Seller under collective bargaining
agreements pertaining to employees of Seller; any liabilities of Seller
to pay severance benefits to employees of Seller whose employment is
terminated prior to the Closing Date or in connection with or following
the sale of the Purchased Assets pursuant to the provisions hereof; or
any liability under any Federal or state civil rights or similar law,
or the so-called "WARN Act", resulting from the termination of
employment of employees;
(h) product warranty liabilities of Seller with respect to
products shipped on or prior to the Closing Date and products
constituting finished goods inventory as of the Closing Date, to the
extent such liabilities are not reserved against on the Interim
Financial Statements;
(i) liabilities with respect to returns or allowances of
products which were sold on or prior to the Closing Date or which
constitute finished goods inventory as of the Closing Date and
liabilities with respect to recalls of products sold prior to the
Closing Date, whether required by a governmental body or otherwise, to
the extent not reserved against on the Interim Financial Statements;
(j) any claims against or liabilities of Seller for injury to
or death of persons or damage to or destruction of property (including,
without limitation, any workmen's compensation claim) regardless of
when said claim or liability is asserted, including, without
limitation, any claim or liability for consequential or punitive
damages in connection with the foregoing, to the extent not reserved
against on the Interim Financial Statements;
(k) any liabilities for medical, dental, and disability (both
long-term and short-term) benefits, whether insured or self-insured,
accruing or based upon exposure to conditions, or aggravation of
disabilities or conditions in existence, on or prior to the Closing
Date or for claims incurred or disabilities commencing on or prior to
the Closing Date, and any liability for the foregoing, regardless of
when accrued and regardless of when any condition existed, which arises
by virtue of an employment relationship at any time with Seller;
(l) any liabilities arising out of or in connection with any
of Seller's employee welfare and pension benefit (including profit
sharing) plans;
(m) any bonus or other compensation payments to Seller's
employees which are owed by reason of the sale of the Purchased Assets,
and any liabilities for salaries, wages, bonuses, vacation pay and
other compensation which are owed to employees of Seller;
(n) any liabilities arising out of or in connection with any
violation of a statute or governmental rule, regulation or directive;
and
(o) without limitation by the specific enumeration of the
foregoing, any liabilities not expressly assumed by Purchaser pursuant
to the provisions of Section 2.2.
2.4 No Expansion of Third Party Rights. The assumption by Purchaser of
the Assumed Liabilities shall not expand the rights or remedies of any third
party against the Purchaser or the Seller as compared to the rights and remedies
which such third party would have had against the Seller had the Purchaser not
assumed the Assumed Liabilities.
ARTICLE III
Consideration, Manner of Payment and Closing
1 Consideration. The consideration for the Purchased Assets shall
consist of a Class P Warrant to purchase 1,484,993 shares of common stock, $.01
par value, of Purchaser's parent, ValueVision International, Inc., a Minnesota
corporation ("VVI"), in the form attached hereto as Exhibit A (the "Warrant"),
plus the aggregate book amount of the Assumed Liabilities (the "Purchase
Price").
2 Time and Place of Closing. The transactions contemplated by this
Agreement shall be consummated (the "Closing") at 10:00 am at the offices of
Altheimer & Gray, 10 South Wacker Drive, Suite 4000, Chicago, Illinois, 60606 on
the date hereof. The date on which the Closing occurs in accordance with the
preceding sentence is referred to in this Agreement as the "Closing Date". The
Closing shall be effective for all purposes as of 12:01 a.m., Central Daylight
Time, on the Closing Date.
3 Manner of Satisfaction of the Consideration. At the Closing,
Purchaser shall assume the Assumed Liabilities and deliver the Warrant to
Seller. The Warrant shall (i) be subject to the terms of an Amended and Restated
Warrant Agreement, dated of even date herewith, between Montgomery Ward & Co.,
Incorporated, an Illinois corporation ("MW"), VVI and Purchaser, and (ii) have
the benefits of an Amended and Restated Registration Rights Agreement, dated of
even date herewith, between MW and VVI.
4 Effect of Agreement. This Agreement shall be effective to convey,
transfer and assign the Purchased Assets to Purchaser, and for Purchaser to
assume the Assumed Liabilities, without the necessity for any further
instruments of transfer, conveyance or assumption.
5 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Purchased Assets in the manner required by Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE IV
Representations and Warranties
1 Purchaser's Representations and Warranties. Purchaser represents and
warrants to Seller that:
(a) Purchaser is a corporation duly organized, existing and in
good standing, under the laws of the State of Minnesota.
(b) Purchaser has full corporate power and authority to enter
into and perform (x) this Agreement and (y) all documents and
instruments to be executed by Purchaser pursuant to this Agreement
(collectively, "Purchaser's Ancillary Documents"). This Agreement has
been, and Purchaser's Ancillary Documents will be, duly executed and
delivered by duly authorized officers of Purchaser.
(c) No consent, authorization, order or approval of, or filing
or registration with, any governmental authority or other person is
required for the execution and delivery by Purchaser of this Agreement
and Purchaser's Ancillary Documents, and the consummation by Purchaser
of the transactions contemplated by this Agreement and Purchaser's
Ancillary Documents.
(d) Neither the execution and delivery of this Agreement and
Purchaser's Ancillary Documents by Purchaser, nor the consummation by
Purchaser of the transactions contemplated hereby, will conflict with
or result in a breach of any of the terms, conditions or provisions of
Purchaser's Articles of Incorporation or By-laws, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment
or decree of any court or governmental authority or of any arbitration
award.
(e) Purchaser is not a party to any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage,
debenture, note or other instrument under the terms of which
performance by Purchaser according to the terms of this Agreement will
be a default, or whereby timely performance by Purchaser according to
the terms of this Agreement may be prohibited, prevented or delayed.
(f) Neither Purchaser nor any of its Affiliates has dealt with
any person or entity who is or may be entitled to a broker's
commission, finder's fee, investment banker's fee or similar payment
for arranging the transaction contemplated hereby or introducing the
parties to each other. As used herein, an "Affiliate" is any person or
entity which controls a party to this Agreement, which that party
controls, or which is under common control with that party. "Control"
means the power, direct or indirect, to direct or cause the direction
of the management and policies of a person or entity through voting
securities, contract or otherwise.
2 Seller's Representations and Warranties. Seller represents and
warrants to Purchaser that, except as set forth in the schedule delivered by
Seller to Purchaser concurrently herewith and identified as the "Disclosure
Schedule":
(a) Seller is a limited partnership duly organized, existing
and in good standing under the laws of the State of Delaware. Seller
has all necessary partnership power and authority to conduct the
Business as the Business is now being conducted.
(b) Seller has qualified as a foreign limited partnership, and
is in good standing, under the laws of all jurisdictions where the
nature of the Business or the nature or location of its assets requires
such qualification and where the failure to so qualify would have a
Material Adverse Effect (as herein defined). For the purposes of this
Agreement, "Material Adverse Effect" means a material adverse effect on
the assets, liabilities, financial condition or results of operations
of the Business, taken as a whole.
(c) Seller has full partnership power and authority to enter
into and perform (x) this Agreement and (y) all documents and
instruments to be executed by Seller pursuant to this Agreement
(collectively, "Seller's Ancillary Documents"). This Agreement has
been, and Seller's Ancillary Documents will be, duly executed and
delivered by duly authorized officers of Seller.
(d) No consent, authorization, order or approval of, or filing
or registration with, any governmental authority or other person is
required for the execution and delivery of this Agreement and Seller's
Ancillary Documents and the consummation by Seller of the transactions
contemplated by this Agreement and Seller's Ancillary Documents.
(e) Neither the execution and delivery of this Agreement and
Seller's Ancillary Documents by Seller, nor the consummation by Seller
of the transactions contemplated hereby, will conflict with or result
in a breach of any of the terms, conditions or provisions of Seller's
Agreement or Limited Partnership or of any statute or administrative
regulation, or of any order, writ, injunction, judgment or decree of
any court or any governmental authority or of any arbitration award.
(f) Copies of the balance sheet, statement of income and
retained earnings, statement of cash flows, and notes to financial
statements of Seller, as of and for the year ended December 29, 1995,
and the unaudited balance sheet and statement of income of Seller as of
and for the six month period ended June 28, 1996 (the "Interim
Financial Statements"), are contained in the Disclosure Schedule. Said
financial statements present fairly, in all material respects, the
financial position of Seller as of the dates thereof, and the results
of operations and cash flow of Seller for the periods covered by said
statements, in accordance with GAAP, consistently applied, except (x)
as disclosed therein, (y) in the case of the Interim Financial
Statements, for normal year-end adjustments, and (z) in the case of the
Interim Financial Statements for the omission of footnote disclosures
required by GAAP.
(g) Seller has good title to, and the partnership power to
sell, the Purchased Assets, free and clear of any liens, claims,
encumbrances and security interests, except for the following liens:
(i) statutory liens for taxes not yet due, (ii) liens of landlords,
carriers, warehousemen, mechanics and materialmen for sums not yet due;
(iii) liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and the like or to secure other performance and obligations;
and (iv) minor irregularities of title which do not in the aggregate
materially detract from the value or use of the Purchased Assets. The
foregoing representation and warranty shall not apply to the Leased
Premises.
(h) Since June 28, 1996, Seller has not:
(i) sold or transferred any material portion of its
assets or property, except for (A) sales of Inventory and (B)
cash applied in payment of Seller's liabilities, in the usual
and ordinary course of business;
(ii) suffered any material loss, or any material
interruption in use, of any material assets or property
(whether or not covered by insurance), on account of fire,
flood, riot, strike or other hazard or Act of God;
(iii) made or suffered any change in the conduct or
nature of the Business which would, individually or in the
aggregate, have a Material Adverse Effect;
(iv) waived any material rights other than in the
ordinary course of business;
(v) paid or declared any distributions to its
partners, or purchased or redeemed any of its partnership
interests;
(vi) incurred any liability or obligation of any
kind, other than in the ordinary course of business; or
(vii) without limitation by the enumeration of any of
the foregoing, entered into any material transaction other
than in the usual and ordinary course of business.
(i) The Disclosure Schedule lists and describes all material
contracts, leases, and agreements to which Seller is a party and which
relate to the conduct of the Business, including, without limitation:
employment and employment related agreements; covenants not to compete;
loan agreements; notes; security agreements; sales representative,
distribution, franchise, advertising and similar agreements; leases and
subleases of Leased Personalty or the Leased Premises; license
agreements; purchase orders and purchase contracts and sales orders and
sales contracts. All contracts, leases, subleases and other instruments
referred to in this paragraph 4.3(i) are binding upon the parties
thereto. No default by Seller has occurred thereunder and, to Seller's
knowledge, no default by the other contracting parties has occurred
thereunder, which default would, individually or in the aggregate, have
a Material Adverse Effect.
(j) Seller is not a party to, or bound by, any unexpired,
undischarged or unsatisfied written contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by Seller according to the terms of this Agreement will be
a default or an event of acceleration, which default or acceleration
would, individually or in the aggregate, have a Material Adverse
Effect, or whereby timely performance by Seller according to the terms
of this Agreement may be prohibited, prevented or delayed.
(k) Seller possesses all licenses, permits, registration and
governmental approvals (the "Permits") which are required in order for
the Seller to conduct the Business as presently conducted where the
failure to possess such Permits would have a Material Adverse Effect.
The Disclosure Schedule contains a complete list of all Permits issued
to Seller.
(l) There is no litigation or proceeding, in law or in equity,
and there are no proceedings or governmental investigations before any
commission or other administrative authority, pending, or, to Seller's
knowledge, overtly threatened, against Seller or its Affiliates, or
with respect to the consummation of the transaction contemplated
hereby, or the use of the Purchased Assets (whether used by Purchaser
after the Closing or by Seller prior thereto) which if decided
adversely to Seller would have a Material Adverse Effect.
(m) Seller is not in violation of, or delinquent in respect
to, any decree, order or arbitration award or law, statute, or
regulation of or agreement with, or Permit from, any Federal, state or
local governmental authority (or to which its properties, assets,
personnel, business activities or the Leased Premises are subject or to
which it, itself, is subject), including, without limitation, laws,
statutes and regulations relating to equal employment opportunities,
fair employment practices, and discrimination, which violation or
delinquency would have a Material Adverse Effect.
(n) The Leased Premises are leased to Seller pursuant to
written leases, copies of which are attached to the Disclosure
Schedule. Seller is not in default under any material term of any
agreement relating to the Leased Premises nor, to Seller's knowledge,
is any other party thereto in material default thereunder.
(o) Each material (i) trademark, service mark, slogan, trade
name, trade dress and the like (collectively with the associated
goodwill of each, "Trademarks"), including information regarding each
registration and pending application to register any such Trademarks;
(ii) common law Trademark; (iii) patent on and pending application to
patent any technology or design; (iv) registration of and application
to register any copyright; and (v) license of rights in computer
software, Trademarks, patents, copyrights, unpatented formulations, and
know-how, whether to or by Seller, is listed in the Disclosure
Schedule. The scheduled rights are referred to herein collectively as
the "Intellectual Property".
(p) Seller has no knowledge: (i) that any other person or
entity claims the right to use in connection with similar or closely
related goods and in the same geographic area, any mark which is
identical or confusingly similar to any of the Trademarks; (ii) of any
claim that any third party asserts ownership rights in any of the
Intellectual Property; (iii) of any claim that Seller's use of any
Intellectual Property infringes any right of any third party; and (iv)
that any third party is infringing any of Seller's rights in any of the
Intellectual Property.
(q) Neither Seller, nor any of its Affiliates, has dealt with
any person or entity who is or may be entitled to a broker's
commission, finder's fee, investment banker's fee or similar payment
from Purchaser for arranging the transaction contemplated hereby or
introducing the parties to each other.
3 Limitation on Warranties. Except as expressly set forth in Section
4.2, Seller makes no express or implied warranty of any kind whatsoever,
including, without limitation, any representation as to physical condition or
value of any of the Purchased Assets or the future profitability or future
earnings performance of the Business. ALL IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
4 Definition of Knowledge. For the purposes of this Agreement, the
knowledge of Seller shall be deemed to be limited to the actual knowledge as of
the Closing Date of Bernard F. Brennan, John W. Workman, Spencer H. Heine and
Philip Hartung, without giving effect to imputed knowledge.
ARTICLE V
Post-Closing Agreements
1 Post-Closing Agreements. From and after the Closing, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article V.
2 Inspection of Records. Seller and Purchaser shall each make their
respective books and records (including work papers in the possession of their
respective accountants) available for inspection by the other party, or by its
duly accredited representatives, for reasonable business purposes at all
reasonable times during normal business hours, for a seven (7) year period after
the Closing Date, with respect to all transactions occurring prior to and those
relating to the Closing, the historical financial condition, results of
operations and cash flows of Seller, or the Assumed Liabilities. As used in this
Section 5.2, the right of inspection includes the right to make extracts or
copies. The representatives of a party inspecting the records of the other party
shall be reasonably satisfactory to the other party.
3 Payments of Accounts Receivable. In the event Seller shall receive
any instrument of payment of any of the Accounts Receivable, Seller shall
forthwith deliver it to Purchaser, endorsed where necessary, without recourse,
in favor of Purchaser.
4 Products Liability Insurance. For a period of five years commencing
on the Closing Date, Purchaser shall maintain policies of products liability
insurance naming Seller as an additional insured and covering the operations of
the Business with coverages and limits which are comparable to those maintained
from time to time by Purchaser with respect to its own business.
5 Non-Assignment. Notwithstanding any provision to the contrary
contained herein, Seller shall not be obligated to assign to Purchaser any
contract, purchase order, sales order, lease or other instrument which provides
that it may not be assigned without the consent of the other party thereto and
for which such consent is not obtained, but in any such event, Seller shall
cooperate with Purchaser in any reasonable arrangement designed to provide the
benefits thereof to Purchaser.
6 Further Assurances. The parties shall execute such further documents,
and perform such further acts, as may be necessary to transfer and convey the
Purchased Assets to Purchaser, on the terms herein contained, and to otherwise
comply with the terms of this Agreement and consummate the transaction
contemplated hereby.
7 Right of Endorsement, Etc. Effective upon the Closing, Seller hereby
constitutes and appoints Purchaser and its successors and assigns, the true and
lawful attorney of Seller with full power of substitution, in the name of
Purchaser, or the name of the Seller, on behalf of and for the benefit of
Purchaser, to collect all items being sold, transferred, conveyed and assigned
to Purchaser as provided herein, to endorse, without recourse, notes and other
instruments constituting or relating to the Assets in the name of the Seller, to
institute and prosecute, in the name of the Seller or otherwise, all proceedings
which Purchaser may deem proper in order to collect, assert or enforce any
claim, right or title of any kind in or to the Purchased Assets, to defend and
compromise any and all actions, suits or proceedings in respect of any of the
Purchased Assets and to do all such acts and things in relation thereto as
Purchaser may deem advisable. The foregoing powers are coupled with an interest
and shall be irrevocable by Seller, directly or indirectly, whether by the
dissolution of the Seller or in any manner or for any reason.
ARTICLE VI
Intentionally Omitted
ARTICLE VII
Indemnification
1 General. From and after the Closing, the parties shall indemnify each
other as provided in this Article VII. As used in this Agreement, the term
"Damages" shall mean all liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including, without limitation, reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation thereof.
2 Indemnification Obligations of Seller. Subject to the provisions of
Section 7.3, Seller shall indemnify, save and keep harmless Purchaser and its
successors and permitted assigns ("Purchaser Indemnitees") against and from all
Damages sustained or incurred by any of them resulting from or arising out of or
by virtue of:
(a) any material inaccuracy in or breach of any representation
and warranty made by Seller in this Agreement or in any closing
document delivered to Purchaser in connection with this Agreement;
(b) any material breach by Seller of, or failure by Seller to
comply with, any of its covenants or obligations under this Agreement
(including, without limitation, its obligations under this Article
VII); and
(c) the failure to discharge any liability or obligation of
Seller other than the Assumed Liabilities.
3 Limitation on Seller's Indemnification Obligations. Seller's
obligations pursuant to the provisions of Section 7.2 are subject to the
following limitations:
(a) the Purchaser Indemnitees shall not be entitled to recover
under Section 7.2(a): (i) until the total amount which Purchaser would
recover under Section 7.2(a), but for this Section 7.3(a), exceeds
$100,000, and then only for the excess over $100,000; (ii) unless a
claim for Damages has been asserted by written notice, specifying the
details of the alleged misrepresentation or breach of warranty,
delivered to Seller prior to April 1, 1998; or (iii) if at or before
the time of Closing Mark Payne or Stuart Romenesko had actual knowledge
of the misrepresentation or breach of warranty;
(b) the Purchaser Indemnitees shall not be entitled to recover
under Section 7.2(b) or (c) hereof if indemnification is also available
under Section 7.2(a) hereof;
(c) the Purchaser Indemnitees shall not be entitled to recover
under Section 7.2:
(i) WITH RESPECT TO CONSEQUENTIAL DAMAGES, INCLUDING
CONSEQUENTIAL DAMAGES CONSISTING OF BUSINESS INTERRUPTION OR
LOST PROFITS, OR WITH RESPECT TO PUNITIVE DAMAGES;
(ii) to the extent aggregate Damages under Section
7.3(a) exceed $10,000,000; and
(iii) to the extent the Damages are covered by
insurance (including title insurance) held by Purchaser.
4 Purchaser's Indemnification Covenants. Purchaser shall indemnify,
save and keep harmless Seller and its successors and permitted assigns against
and from all Damages sustained or incurred by any of them resulting from or
arising out of or by virtue of:
(a) any material inaccuracy in or breach of any representation
and warranty made by Purchaser in this Agreement or in any closing
document delivered to Seller in connection with this Agreement;
(b) any material breach by Purchaser of, or failure by
Purchaser to comply with, any of its covenants or obligations under
this Agreement (including, without limitation, its obligations under
this Article VII); or
(c) Purchaser's failure to pay, discharge and perform any of
the Assumed Liabilities.
5 Indemnification Exclusive Remedy. Indemnification pursuant to the
provisions of this Article VII shall be the exclusive remedy of the parties for
any misrepresentation or breach of any warranty or covenant contained herein or
in any closing document executed and delivered pursuant to the provisions hereof
with respect to any matter which is the subject of this Article VII. Without
limiting the generality of the preceding sentence, no legal action sounding in
tort or strict liability may be maintained by any party.
ARTICLE VIII
Miscellaneous
1 References. The following terms are defined in the Agreement:
Term Section
---- -------
Accounts Receivable 1.2(f)
Affiliate 4.1(f)
Agreement Preamble
Assumed Liabilities 2.1
Business Recitals
Closing 3.2
Closing Date 3.2
Code 3.5
Control 4.1(f)
Damages 7.1
Disclosure Schedule 4.2
Employee(s) 6.1
Equipment 1.2(b)
ERISA 6.2
GAAP 2.2(a)
Intellectual Property 4.2(o)
Interim Financial Statements 4.2(f)
Inventory 1.2(b)
Leased Personalty 1.2(d)
Leased Premises 1.2(e)
Material Adverse Effect 4.2(b)
MW 3.3
Permits 4.2(k)
Purchased Assets Recitals
Purchase Price 3.1
Purchaser Preamble
Purchaser Indemnitees 7.2
Purchaser's Ancillary Documents 4.1(b)
Seller Preamble
Seller's Ancillary Documents 4.2(c)
VVI 3.1
Trademarks 4.2(o)
Warrant 3.1
Welfare Plans 6.2
2 Sales and Transfer Taxes. Purchaser shall pay all sales, use,
transfer and conveyance taxes arising in connection with the sale and transfer
of the Purchased Assets to Purchaser pursuant to this Agreement.
3 Publicity. Except as otherwise required by law, press releases
concerning this transaction shall be made only with the prior agreement of the
Seller and Purchaser.
4 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand by facsimile, or by nationally recognized private carrier
shall be deemed given on the first business day following receipt; provided,
however, that a notice delivered by facsimile shall only be effective if such
notice is also delivered by hand, or deposited in the United States mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile. All notices shall be addressed as follows:
If to Seller,
addressed to:
Montgomery Ward Direct, L.P.
Interchange Tower, Suite 300
600 South Highway 169
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: David W. Schoenberg
Telecopier: (312) 715-4800
If to Purchaser,
addressed to:
ValueVision International, Inc.
6740 Shady Oak Road
Minneapolis, Minnesota 55344
Attention: Chief Executive Officer
with a copy to:
Maslon, Edelman, Borman & Brand, a professional
limited liability partnership
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
Attention: William M. Mower
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 8.4.
5 Expenses. Each party hereto shall bear all fees and expenses incurred
by such party in connection with, relating to or arising out of the execution,
delivery and performance of this Agreement and the consummation of the
transaction contemplated hereby, including, without limitation, attorneys',
accountants' and other professional fees and expenses.
6 Entire Agreement. This Agreement and the instruments to be delivered
by the parties pursuant hereto constitute the entire agreement between the
parties. Each exhibit and the Disclosure Schedule shall be considered
incorporated into this Agreement. Any matter which is disclosed in any portion
of the Disclosure Schedule is deemed to have been disclosed for the purposes of
all relevant provisions of this Agreement. The inclusion of any item in the
Disclosure Schedule is not evidence of the materiality of such item for the
purposes of this Agreement and Seller's Ancillary Documents. The parties make no
representations or warranties to each other, except as contained in this
Agreement. Purchaser acknowledges that it has conducted an independent
investigation of the financial condition, assets, liabilities, properties and
projected operations of the Business in making its determination as to the
propriety of the transaction contemplated by this Agreement, and in entering
into this Agreement has relied solely on the results of said investigation and
on the representations and warranties of Seller expressly contained in this
Agreement.
7 Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
8 Applicable Law. This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Illinois applicable to contracts
made in that State.
9 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer on
any person other than the parties hereto, and their respective successors and
permitted assigns any rights, remedies, obligations or liabilities under or by
reason of this Agreement, including, without limitation, third party beneficiary
rights.
10 Assignability. This Agreement shall not be assignable by either
party without the prior written consent of the other party.
11 Amendments. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto.
12 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
SELLER:
MONTGOMERY WARD DIRECT, L.P.
By: MW Direct General, Inc.,
the general partner
By:
Its:
PURCHASER:
VALUEVISION DIRECT MARKETING
COMPANY, INC.
By:
Its:
EXHIBIT B
AMENDED AND RESTATED OPERATING AGREEMENT
THIS AGREEMENT is made as of July 27, 1996 between Montgomery Ward &
Co., Incorporated, an Illinois corporation ("MW") and ValueVision International,
Inc., a Minnesota corporation ("VVI").
R E C I T A L S
A. MW and VVI are parties to a certain Operating Agreement, dated March
13, 1995 (the "Original Agreement"), pursuant to which MW granted to VVI certain
rights, and agreed to certain restrictions on its activities, in connection with
Television Home Shopping (as herein defined).
B. Effective concurrently herewith, VVI is purchasing from Montgomery
Ward Direct, L.P., a Delaware limited partnership which is a wholly owned
indirect subsidiary of MW ("MWD"), substantially all of the assets of MWD. MWD
is engaged in the business of selling Products (as herein defined) through
direct- mail specialty catalogs. In addition, concurrently herewith, (x) the
existing Servicemark License Agreement between MW and VVI, dated March 13, 1995
is being amended and restated to include the granting to VVI of a license to use
the service mark "Montgomery Ward Direct" (the "MWD Mark") and (y) the existing
Credit Card License and Receivables Sale Agreement between MW and VVI, dated
March 13, 1995 is being amended in certain respects, to include the use of the
Card (as herein defined) in connection with Catalog Activities (as herein
defined).
C. By virtue of the acquisition of the assets of MWD, and the grant of
the license to use the MWD Mark, the parties desire to amend and restate the
Original Agreement to (i) cover the direct-mail businesses to be conducted by
VVI under the MWD Mark, and (ii) revise certain provisions of the Original
Agreement to reflect understandings reached by the parties based upon their
fifteen months of experience in operating under the Original Agreement.
A G R E E M E N T S
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend and
restate the Original Agreement to read as follows:
IX. Certain Definitions. For the purposes of this Agreement:
(a) "Affiliate" shall mean any Person which directly or
indirectly is controlled by the Person in question. "Control" means the
possession, directly or indirectly, of the power to direct or to cause
the direction of the management and policies of a Person whether
through ownership of voting securities, through the power to appoint
directors, by contract or otherwise. For purposes of this Agreement,
neither the General Electric Company ("GE"), nor General Electric
Capital Corporation ("GECC"), nor any subsidiary of GE or GECC, shall
be deemed to be an Affiliate of MW.
(b) "Cable Systems" shall mean individual cable television
systems. Each cable television system shall be considered to be an
individual Cable System, regardless of whether such cable television
system is operated by an operator of more than one Cable System.
(c) "Card" shall mean any private-label credit card offered by
any member of the MW Group or its designee to customers of any member
of the MW Group, including but not limited to the Montgomery Ward
credit card and the Lechmere credit card.
(d) "Catalog Activities" shall mean the conduct of the
following activities:
(i) the offer and sale of Products through mail-
order catalog offers (the "Primary Catalog Activity");
(ii) the offer and sale of Products through direct
mail syndications and reverse syndications (as such terms are
commonly used in the catalog and direct- mail industry);
(iii) the offer and sale of Products through
telemarketing to customers derived through the Primary Catalog
Activity;
(iv) prospecting for new customers using a
combination catalog and pre-approved credit offer;
(v) use of 30, 60 and 120 second television
commercials for promotion of the Primary Catalog
Activity;
(vi) the offer and sale of Products through solo and
multi-solo mailings to customers derived through the Primary
Catalog Activity; and
(vii) the use of the Internet and on-line services to
promote the Primary Catalog Activity.
(e) "Effective Date" shall mean March 13, 1995.
(f) "Excluded Products" shall mean unique, proprietary
Products (as herein defined) such as the PowerGrower, that (x) are
developed or promoted by a member of the MW Group for the primary
benefit of the MW Group, and (y) are not marketed through the use of
any of the Marks.
(g) "HSN" shall mean Home Shopping Network, Inc., a Delaware
corporation.
(h) "HSN Agreements" shall mean (i) that certain Agreement,
dated as of October 12, 1988 among Signature Agency, Inc., HSN and HSN
Insurance, Inc., (ii) that certain Agreement, dated as of October 31,
1987, between Signature's Nationwide Auto Club, Inc., HSN and Home
Shopping Insurance, Inc., (iii) that certain Agreement, dated as of
October 12, 1987, between Montgomery Ward Life Insurance Company, HSN
and Home Shopping Insurance, Inc., and (iv) that certain Agreement,
dated as of October 10, 1991, among Montgomery Ward Enterprises, Inc.,
The Signature Life Insurance Company of America, Home Shopping Club,
Inc. and HSN Insurance, Inc.
(i) "Marks" shall have the meaning ascribed to such term in
the Restated Servicemark License Agreement.
(j) "MW Group" shall mean, collectively, MW and its
Affiliates.
(k) "MW Products" shall mean Products offered for sale by any
member of the MW Group.
(l) "MW Services" shall mean services offered from time to
time by Signature (as herein defined).
(m) "New Warrants" shall mean Series P Warrants to purchase
shares of common stock, $.01 par value, of VVI.
(n) "Person" shall mean a natural person, corporation, general
or limited partnership, limited liability company or partnership,
proprietorship, association, joint venture, governmental agency, trust,
estate, unincorporated organization, or other entity or organization
whether acting in an individual, fiduciary, or other capacity.
(o) "Pledge Agreement" shall mean that certain Pledge
Agreement, dated of even date herewith, between MW and VVI.
(p) "Product" or "Products" shall mean any consumer
merchandise other than Excluded Products.
(q) "Related Agreements" shall mean the Pledge Agreement, the
Receivables Sale and Purchase Agreement (as herein defined) and the
Restated Servicemark License Agreement (as herein defined).
(r) "QVC" shall mean QVC Network, Inc., a Delaware
corporation.
(s) "Restated Servicemark License Agreement" shall mean that
certain Amended and Restated Servicemark License Agreement between MW
and VVI, of even date herewith.
(t) "Receivables Sale and Purchase Agreement" shall mean that
certain Credit Card License and Receivables Sale Agreement between MW
and VVI, dated March 13, 1995, as amended by a letter agreement of even
date herewith.
(u) "Retailer" shall mean a Person principally engaged in the
retail merchandising of consumer goods within the United States, other
than a member of the MW Group or VVI. By way of example and not of
limitation, "Retailer" includes merchandisers such as Sears,
J.C.Penney, Macys, Target, and the like.
(v) "Retained Catalog Rights" shall mean the following:
(i) the right of MW to conduct its existing
special-offers business through statement inserts, solo and
multi-solo mailings and through syndications;
(ii) the right of Signature (as herein defined) to
market a membership-based shopping service and to do catalog
or solo mailings to potential members to solicit memberships
and to encourage members to purchase merchandise through such
service; and
(iii) the right of Signature to conduct continuity
businesses.
(w) "Signature" shall mean Signature Financial/Marketing, Inc.
and its Affiliates, all of which presently are members of the MW Group.
(x) "Syndicated Programs" shall mean syndicated/transactional
television programming intended for broadcast over multiple broadcast
or cable television networks, using a format other than that described
in the first sentence of the definition of Television Home Shopping.
(y) "Taxes" shall mean sales, use, service and similar taxes.
(z) "Television Home Shopping" shall mean Product-focused
television programming whereby Products are sold by "on-air" hosts and
orders are placed by viewers directly with the party providing said
television programming or its agents or representatives, using
substantially the format used as of the date hereof by VVI, HSN and
QVC. Without limiting the generality of the preceding sentence,
Television Home Shopping does not include commercials or Syndicated
Programs, but does, for the five year period commencing on the date
hereof, include so-called "infomercials" of a length not exceeding 30
minutes.
(aa) "ViaTV" shall mean RSTV, Inc., a Florida corporation.
(y) "VVI" shall mean ValueVision International, Inc. and its
Affiliates.
(z) "VVI Cataloging Business" shall mean the conduct by VVI of
Catalog Activities, through the use of one or more of the Marks and/or
offering customers the use of the Card.
Other definitions are contained in the body of this Agreement.
1. Exclusivity. During the term of this Agreement:
(a) No member of the MW Group will, directly or indirectly:
(i) sell or offer for sale any Product through
Television Home Shopping or Catalog Activities within the
United States, except through VVI; provided, however that this
Section 2(a)(i) shall not apply to (w) Excluded Products, (x)
Retained Catalog Rights, or (y) Products offered for sale by
any business that is acquired from a third party after the
Effective Date by any member of the MW Group;
(ii) start up a Television Home Shopping business or,
for a period of five years, commencing on the date hereof, a
Catalog Activities business;
(iii) acquire 10% or more of the outstanding equity
securities (or securities representing 10% or more of the
aggregate voting power of the outstanding securities) of a
Person principally engaged in Television Home Shopping,
including, without limitation, HSN, QVC, and ViaTV, or, for a
period of five years, commencing on the date hereof, Catalog
Activities; or
(iv) enter into, or assist any Person (i) to obtain,
arrangements for Cable System carriage of Television Home
Shopping, including, without limitation, by purchasing
advertising time on any such Cable System for the purpose of
so assisting such Person, or purchase advertising time on
Television Home Shopping programming on any Cable System,
except with VVI pursuant to this Agreement, or (ii) in
starting-up, developing or conducting any Catalog Activities
(other than the Retained Catalog Rights).
This Section 2(a) shall not prevent any member of the MW Group from
acquiring a voting or equity interest in, or the operating assets of, a
Person that engages in Television Home Shopping or Catalog Activities
other than as a principal business; provided, however, that if the MW
Group shall acquire a Person, or the assets of a Person, engaged in
Catalog Activites other than as a principal business, MW shall notify
VVI, and, if VVI shall desire to purchase the portion of such Person
which is engaged in Catalog Activities, MW shall negotiate in good
faith with VVI with a view to selling such portion to VVI.
(b) Without the prior written consent of MW, which shall not
unreasonably be withheld:
(i) VVI and its Affiliates will not sell or offer for
sale any Products through Television Home Shopping within the
United States using the servicemarks, trade names or
trademarks of any Retailer; and
(ii) VVI and its Affiliates shall not engage in
Catalog Activities using any servicemarks, trade names or
trademarks of any Retailer other than MW and its Affiliates,
or offer for sale through Catalog Activities services which
are competitive with MW Services then being offered by
Signature, provided that Signature shall have offered such MW
Services prior to the time competitive services are intended
to be offered by VVI;
(c) Except as otherwise provided in the HSN Agreements, MW
shall give to VVI the first opportunity to offer for sale, via
Television Home Shopping, MW Services which MW considers in good faith
to be appropriate for sale by means of Television Home Shopping. MW
shall do so by giving VVI notice of MW's intent to offer such MW
Services, and the prices, terms and other economic terms with respect
to such MW Services which MW desires. MW and VVI shall thereupon
negotiate in good faith over whether VVI shall offer such MW Services,
and the terms of any such offer. If MW and VVI reach an agreement with
respect to such MW Service within 30 days after the commencement of
negotiations, then VVI shall have the exclusive right to offer such MW
Service through Television Home Shopping. If the parties do not so
reach an agreement, MW shall thereafter have the right to offer such MW
Service to other Television Home Shopping networks on such terms as MW
shall determine in its sole judgement, provided that the Card shall not
be offered and the Marks shall not be used in connection with the
offering of such MW Services on such networks.
(d) MW shall give to VVI the first opportunity to carry any
Syndicated Program which MW desires to be distributed by a broadcast or
cable television network engaged primarily in Television Home Shopping,
including without limitation VVI, HSN, QVC and ViaTV. MW shall do so by
giving VVI notice of MW's intent to so distribute such Syndicated
Program, and the economic terms with respect to such Syndicated Program
which MW desires. MW and VVI shall thereupon negotiate in good faith
over the terms pursuant to which such Syndicated Program would be
broadcast by VVI and the compensation, if any, payable to MW therefor.
If MW and VVI reach an agreement with respect to such Syndicated
Program within 30 days after the commencement of negotiations, then MW
shall not offer such Syndicated Program over any broadcast or cable
television network engaged primarily in Television Home Shopping other
than VVI. If the parties do not so reach an agreement, MW shall
thereafter have the right to offer such Syndicated Program to other
Television Home Shopping networks on terms not materially less
favorable to MW than the terms which were offered to VVI, provided that
the Card shall not be offered and the Marks shall not be used in
connection with such Syndicated Program on such network.
2. Marks. MW shall not license or permit any Person, other than VVI or
its Affiliates, to use the Marks (or marks confusingly similar thereto) in
Television Home Shopping or Catalog Activities, nor shall MW license or permit
any Person other than VVI engaged primarily in Television Home Shopping or
Catalog Activities, including without limitation QVC, HSN and ViaTV, to use the
Marks (or marks confusingly similar thereto) for any purpose.
3. Card. MW shall not license or permit any Person, other than VVI, to
use the Card to sell or offer for sale any Products through Television Home
Shopping or Catalog Activities, nor shall MW license or permit any Person other
than VVI engaged primarily in Television Home Shopping (including without
limitation QVC, HSN, and ViaTV) or Catalog Activities, to use the Card for any
purpose, provided, however, that notwithstanding the foregoing, the Card may be
used for any purpose other than to sell or offer for sale any Products through
Television Home Shopping or Catalog Activities (other than through the Retained
Catalog Rights) by (i) any member of the MW Group, and (ii) any person that was
using the Card prior to such time as MW obtained actual knowledge that such
Person was controlled by a company engaged primarily in Television Home Shopping
or Catalog Activities.
4. Programming and Catalog Content. VVI shall have exclusive control
over all television programming for Television Home Shopping, and catalog and
mailing content for Catalog Activities, including without limitation, product
selection, method and form of presentation and content; provided, however, that
any Television Home Shopping programming, and any Catalog Activity, employing
any of the Marks, or using the Card, shall be subject to the provisions of the
Restated Servicemark License Agreement and the Receivables Sale and Purchase
Agreement. Nothing contained herein shall preclude VVI from offering television
programming in formats other than Television Home Shopping.
5. Fulfillment. VVI shall have sole responsibility for, and exclusive
control over, fulfillment except as provided herein. Without limiting the
generality of the preceding sentence:
(a) Except as provided in this paragraph, VVI shall have sole
responsibility for and exclusive control over inbound telemarketing and
fulfillment of viewer orders generated through Television Home
Shopping, and fulfillment of sales generated through Catalog
Activities, either from VVI's inventory or through drop-shipments
arranged by VVI with MW or other drop-ship vendors. Notwithstanding the
foregoing, MW shall have responsibility for fulfillment of viewer or
customer orders that are drop-shipped from MW to the customer.
(b) Except as provided in this paragraph, VVI shall bear the
sole risk of loss with respect to all merchandise, including MW
Products, including the loss of risk in transit and the risk of theft.
Notwithstanding the foregoing, MW shall bear the sole risk of loss,
including the risk of loss in transit and the risk of theft, for orders
that are drop-shipped from MW to the customer.
(c) VVI shall bear the sole credit risk with respect to all
Products, including MW Products, and MW Services, which VVI shall sell
on credit, excluding, however, any Product sold through use of the
Card, except as otherwise provided in the Restated Receivable Sales and
Purchase Agreement.
(d) Except as provided in this paragraph, VVI will be solely
responsible for collecting from its customers any Taxes which may be
due on any sales of Product (including MW Products) or MW Services to
its customers and shall remit all such amounts to the appropriate
taxing authorities. Notwithstanding the foregoing, MW shall be solely
responsible for collection of Taxes from its customers who buy Product
or MW Services using the Card, except as provided in the Restated
Receivable Sales and Purchase Agreement. Nevertheless, MW shall remit
to VVI, pursuant to the Restated Receivable Sales and Purchase
Agreement, an amount equal to the Taxes charged to customers by VVI on
each purchase using the Card, which amount VVI shall remit to the
appropriate taxing authority.
(e) VVI will not modify its standard 30-day Product return
period (except for Products constituting "seconds", Products which have
been repaired or reconditioned or closeouts) without MW's consent,
which consent will not unreasonably be withheld. VVI and MW shall
instruct customers to return Product purchased from VVI through
Television Home Shopping or Catalog Activities (other than Product
drop-shipped by MW) to VVI, and not to MW stores. In the event that MW
accepts returns of Product purchased from VVI through Television Home
Shopping or Catalog Activities in accordance with VVI's return policy,
MW shall promptly ship such product to VVI. If such return was accepted
in accordance with VVI's return policy, VVI will bear the freight cost
associated with such return; otherwise, VVI and MW will each bear 50%
of such cost.
6. Purchase of MW Products and MW Services from MW.
(a) VVI shall have the right, exercisable from time to time
upon written notice to MW using an agreed form of purchase order, to
purchase MW Products, for the purpose of resale by means of Television
Home Shopping or Catalog Activities, subject to (i) applicable
restrictions in vendor agreements pursuant to which MW purchased such
MW Products, and (ii) MW's own requirements for MW Products. Upon
request, MW will advise VVI as to whether an agreement with any of MW's
vendors contains any restrictions on MW's ability to resell Product
from such vendor to VVI. MW shall have the sole right to determine its
requirements for such MW Products. The prices of such MW Products shall
not exceed MW's direct cost thereof (including freight, but excluding
corporate overhead charges), and the terms of sale shall be the same
terms as those under which MW purchased such MW Products, except that
such MW Products shall be shipped to VVI f.o.b. MW's warehouses. MW
agrees to use commercially reasonable efforts to assist VVI to obtain
vendors' consents and any necessary trademark licenses. VVI will cease
offering via Television Home Shopping any MW Product with respect to
which MW advises VVI in writing that the vendor has specifically
requested that such MW Product not be sold via Television Home Shopping
("Withdrawn Product"). MW will accept returns of all such Withdrawn
Product from VVI and will reimburse to VVI the purchase price and
freight charges paid by VVI in acquiring or returning such Withdrawn
Product.
(b) Prices and terms with respect to MW Services shall be as
agreed from time to time by MW and VVI with respect to the particular
MW Service to be offered through Television Home Shopping or Catalog
Activities.
(c) MW shall have the right to establish a credit limit, and
credit terms, for all VVI purchases pursuant to this Section 7 and
pursuant to Section 8. Except as provided above with respect to
Withdrawn Product, return privileges with respect to MW Products shall
be as agreed between MW and VVI with respect to the particular MW
Products, and in the absence of such an agreement, VVI shall not have
return privileges, except with respect to defective goods.
(d) MW disclaims any express or implied warranties with
respect to MW Products, including without limitation the implied
warranties of merchantability and fitness for a particular purpose,
except for any private-label MW Products as to which MW offers a
manufacturer's warranty (in which case MW's standard manufacturer's
warranty for such MW Product shall apply). MW will assign to or
otherwise make available to VVI all manufacturer's warranties and other
rights of MW relating to third party claims arising from MW Products
sold by MW to VVI and provide reasonable assistance to VVI in obtaining
the benefits of such warranties, at no expense to MW; provided,
however, that MW shall retain the concurrent right to assert such
rights with respect to such MW Product.
7. Introductions to MW Vendors. From time to time during the term
hereof, MW will introduce VVI's buyers to MW's principal vendors and such other
MW vendors to which VVI reasonably requests an introduction, and MW's buyers
will provide reasonable advice and assistance to VVI's buyers to obtain Product,
vendors' consents and licenses, consistent with the needs of MW's business. In
its discretion, and subject to the terms of its agreements with its vendors, MW
may purchase Product for resale to VVI, on terms established by MW and
acceptable to VVI.
8. Buying Office. During the term hereof, MW will make available to
VVI, without charge, except as provided in this Section 9, office space and
reasonable office support services at MW's headquarters in Chicago for use as a
buying office. To the extent required in order to efficiently implement the
provisions of this Agreement, during the term hereof, VVI will make office space
and reasonable office support services available to MW at its headquarters in
Minneapolis, without charge, except as provided in this Section 9. Each party
may charge the other party for any office support service costs (e.g., long
distance telephone, photocopies, postage), at such party's direct cost
(excluding overhead) to be agreed upon by the parties. The parties agree to work
together in good faith to determine the most cost-effective means to equip and
operate such offices.
9. Cable Carriage Agreements and Advertising Commitments. MW and VVI
agree that:
(a) VVI shall, and MW may at its option, use commercially
reasonable efforts to negotiate for long term cable carriage agreements
pursuant to which Cable Systems will agree to carry VVI's Television
Home Shopping programming. Each party will use its best efforts to
promptly notify the other of the commencement of negotiations with any
Cable System, and will permit the other party to participate therein.
MW shall have the right, but not be obligated, to assist VVI to obtain
long term cable carriage agreements by purchasing advertising time on
such Cable Systems, with cash or non-cash consideration acceptable to
the Cable System (such as MW Services);
(b) subject to the remainder of this paragraph 10, MW shall
not be obligated to purchase advertising time except to the extent it
expressly agrees in writing with the Cable System or VVI to be so
obligated (an "Advertising Commitment"). Notwithstanding the preceeding
sentence, MW hereby makes an Advertising Commitment that the MW Group
will, collectively, purchase not less than $20,000,000 of advertising
time on Cable Systems through VVI during the five year period
commencing August 1, 1996. The MW Group will have sole control of (i)
the nature and extent of all advertising it places with Cable Systems,
(ii) the content of all advertisements, and (iii) the selection of the
specific Cable Systems on which it intends to place advertising. MW
shall receive full credit under this paragraph 10 for any advertising
placed by an Affiliate of MW as of August 1, 1996 through VVI even
though such Affiliate shall have ceased to be an Affiliate of MW. MW
shall use its best efforts to place (i) $5,000,000 of advertising
through VVI during the one year period commencing August 1, 1996, (ii)
$4,000,000 of advertising during each of the years commencing on the
first, second and third anniversary of said date, and (iii) $3,000,000
of advertising during the year commencing on the fourth anniversary of
said date. To the extent the MW Group shall have placed less than the
minimum amount of advertising for a one year period referred to in the
preceding sentence, the shortfall shall be carried forward to
subsequent years; provided, however, that MW shall be obligated to
place all $20,000,000 of advertising prior to August 1, 2001. As
collateral security for MW's obligations under the preceding portions
of this subparagraph (b), MW shall pledge to VVI New Warrants to
purchase 1,637,138 shares, pursuant to the Pledge Agreement;
(c) VVI shall not be obligated to enter into any cable
carriage agreement except to the extent that VVI has determined, in its
sole discretion, that such cable carriage agreement is in the best
interests of VVI. If at any time VVI is required to pay additional
amounts to a Cable System solely because of MW's failure to purchase
advertising time that MW had committed to purchase in an Advertising
Commitment (other than by reason of a breach of such Advertising
Commitment by such Cable System), MW will reimburse VVI for such
additional amount that VVI is required to pay the Cable System, not to
exceed the difference between the amount MW committed to expend on
advertising with such Cable System pursuant to such Advertising
Commitment, and the amount paid by MW for advertising under such
Advertising Commitment. In addition to all other rights and remedies
otherwise provided by law, except as specifically limited hereunder, in
the event that MW breaches an Advertising Commitment, VVI shall have
the termination right provided in subparagraph 22(b)(ii).
10. Board of Directors. Subject to the provisions of this paragraph 11,
commencing on the date of this Agreement and ending on the first to occur of (x)
the date on which MW owns or shall have the right to own less than 10% of the
outstanding common stock of VVI (computed on a fully diluted basis) and (y) the
date on which this Agreement terminates, MW will have the right to designate one
nominee on management's slate of nominees for the Board of Directors; provided,
however that MW will not designate as a director nominee (x) any person who is
an officer or director of GE or GECC or any of their Affiliates, (y) any person
with respect to whom VVI would be required to disclose information in response
to Item 401(f) of Regulation S-K or Item 401(d) of Regulation S-B, or (z) any
proposed nominee to the extent VVI is advised in writing by its counsel that, in
such counsel's opinion, nomination of such designee would result in a violation
of the fiduciary duties of VVI's directors. During the period in which MW has
the right to designate a director-nominee, (i) VVI will agree to recommend such
nominee to its stockholders, (ii) VVI (with respect to any Shares as to which it
has voting power) and Messrs. Robert Johander and Nicholas Jaksich, as long as
such individuals remain members of VVI's Board of Directors, will each vote all
Shares over which they have voting power in favor of the election of MW's
nominee, and (iii) MW will vote all Shares over which it has voting power in
favor of VVI's nominees. If this Agreement shall terminate, unless MW shall at
such time own 10% or more of VVI's then outstanding common stock, MW will cause
its designee to promptly resign from the Board of Directors. The MW
director-nominee, and the directors of MW who were appointed by GE or GECC,
shall each execute such recusal statements as may be required from time to time
in order that none of VVI, GECC nor GE (as both the ultimate indirect owner of
shares of MW and the owner of National Broadcasting Company, Inc. and its
subsidiaries will be in violation of the multiple ownership and combined
ownership rules, regulations, and policies of the Federal Communications
Commission.
11. [Intentionally omitted.]
12. Insurance.
(a) VVI shall purchase and maintain in effect at all times
during the term of this Agreement, the following policies of insurance:
(i) A policy of commercial general liability
insurance, on an occurrence rather than a claims made basis,
including coverage for contractual liability, product
liability, business automobile liability insurance, personal
injury, and property damage and advertising injury, naming MW
as an additional insured, with a combined single limit of
liability for bodily injury and property damage of not less
than $1 million, and endorsed to eliminate the exclusion for
coverage as to property in MW's care, custody and control;
(ii) A policy of employer's liability insurance with
a combined single limit of liability of $500,000 per
occurrence and in the aggregate.
(iii) Umbrella liability insurance on an occurrence
basis with a $10,000,000 combined single limit of liability
per occurrence and in the aggregate.
(iv) Director's and officer's liability insurance
covering all directors and executive officers, with a combined
single limit of not less than $2,000,000 per occurrence and in
the aggregate.
(v) Crime insurance, including coverage for employee
dishonesty, with a combined single limit of not less than
$1,000,000 per occurrence and in the aggregate.
All such insurance shall be endorsed to provide at least ten (10) days'
prior written notice to MW in the event of any proposed cancellation or
modification. All of the insurance specified in this paragraph shall be
with insurance carriers duly authorized to do business in Minnesota.
Upon request, VVI shall furnish MW with copies of policies,
certificates or other evidence of all such insurance in conformity with
the requirements of this Agreement. VVI will also use commercially
reasonable efforts to obtain vendor's endorsements with respect to all
material items of merchandise, other than MW Products or jewelry, sold
by VVI, naming MW as an additional insured.
(b) During the term of this Agreement, MW will:
(i) cause VVI to be named as an additional insured
with respect to all coverages, including without limitation,
contractual liability, products liability and advertising
injury, under MW's comprehensive general liability insurance
policies with respect to all MW Products; and
(ii) use commercially reasonable efforts to obtain
vendor's endorsements, naming VVI, with respect to all
material MW Products which are sold to VVI pursuant to this
Agreement.
13. Inspection of Records. Each party will have the right to inspect
the other's books, records, and premises with regard to any transaction under
this Agreement and the Related Agreements. In order to verify the accuracy of
all the above accounts and records, each party will have the right at its sole
cost to copy said books and records. All information in such books, records, or
revealed by such inspection, shall be deemed to be confidential information
subject to the provisions of Sections 15 (except to the extent provided in
Section 15(a)(i), (ii) and (iii) and 15(b)(i), (ii) and (iii), and 16 hereof).
14. Confidentiality.
(a) In the performance of this Agreement and the Related
Agreements, VVI and its Affiliates may be exposed to the confidential
information or trade secrets of the MW Group and others. VVI and its
Affiliates shall not disclose to anyone not employed by the MW Group or
MW's designee under the Receivables Sale and Purchase Agreement nor use
except on behalf of the MW Group or MW's designee under the Receivables
Sale and Purchase Agreement any such confidential information acquired
by VVI or its Affiliates in the performance of this Agreement or the
Related Agreements, except as authorized by MW by prior writing.
Information regarding all aspects of the MW Group's business, either
directly or indirectly disclosed to VVI or its Affiliates or developed
by VVI or its Affiliates in the performance of this Agreement and the
Related Agreements shall be presumed to be confidential except to the
extent that such information (i) shall have been published or otherwise
made freely available to the general public without restriction through
no wrongdoing of VVI or its Affiliates, (ii) shall have been obtained
from a third party not reasonably known by VVI or its Affiliates after
reasonable inquiry, to be subject to a confidentiality agreement with
MW or any of its Affiliates or (iii) is required (in the reasonable
opinion of VVI's legal counsel) to be disclosed pursuant to law or
legal process. With regard to all of such confidential information, VVI
agrees that it and its Affiliates shall: (a) forever hold in strict
confidence such information; (b) not alter, copy, misappropriate,
misuse, transfer, sell, deliver or divulge, under any circumstances,
any of such confidential information to anyone other than an employee
or agent of VVI or its Affiliates whose duties require access to such
information and then only in the course of VVI's performance under this
Agreement and such employee or agent shall be bound by the terms of
this paragraph 15(a); and (c) upon the termination of this Agreement,
return all such confidential information to MW or to destroy same
together with all additional copies thereof.
(b) In the performance of this Agreement and the Related
Agreements, the MW Group (which, for the purposes of this paragraph
15(b) shall include MW's designee under the Receivables Sale and
Purchase Agreement) may be exposed to confidential information or trade
secrets of VVI, its Affiliates and others. The MW Group shall not
disclose to anyone not employed by VVI or its Affiliates nor use except
on behalf of VVI and its Affiliates any such confidential information
acquired by the MW Group in the performance of this Agreement and the
Related Agreements, except as authorized by VVI by prior writing.
Information regarding all aspects of VVI's business either directly or
indirectly disclosed to the MW Group or developed by any member of the
MW Group in the performance of this Agreement and the Related
Agreements shall be presumed to be confidential except to the extent
that such information (i) shall have been published or otherwise made
freely available to the general public without restriction through no
wrongdoing of the MW Group, (ii) shall have been obtained from a third
party not reasonably known by the MW Group, after reasonable inquiry,
to be subject to a confidentiality agreement with VVI or any of its
Affiliates or (iii) is required (in the reasonable opinion of MW's
legal counsel) to be disclosed pursuant to law or legal process. With
regard to all of such confidential information, the MW Group shall: (a)
forever hold in strict confidence such information; (b) not alter,
copy, misappropriate, misuse, transfer, sell, deliver or divulge, under
any circumstances, any of such confidential information to anyone other
than an employee or agent of the MW Group whose duties require access
to such information and then only in the course of the MW Group's
performance under this Agreement and such employee or agent shall be
bound by the terms of this paragraph 15(b); and (c) upon the
termination of this Agreement, return all such confidential information
to VVI or to destroy same together with all additional copies thereof.
(c) The obligations of the parties under paragraphs 15(a) and
15(b) shall survive the termination or expiration of this Agreement for
a period of five years after such termination or expiration.
15. Cardholder Data.
(a) Pursuant to the Receivables Sale and Purchase Agreement,
VVI and MW have come into, or will hereafter come into, possession of
the names, addresses and other data and information ("Cardholder Data")
with respect to VVI viewers or customers who are or become holders of
the Card and who purchase Product from VVI using the Card
("Cardholders"). Cardholder Data already in MW's or VVI's possession as
of the Effective Date or which MW or VVI acquires from sources other
than the other party do not constitute Cardholder Data. Customers who
have purchased Product from VVI by use of the Card (regardless of
whether such customers have also used any other credit card) are
referred to herein as "Cardholder Customers."
(b) The parties agree that (i) all Cardholder Data provided by
MW to VVI with respect to Persons who are not Cardholder Customers
shall remain the sole property of MW, and (ii) Cardholder Data with
respect to Cardholder Customers will be the joint property of MW and
VVI. Each of MW and VVI may exercise all rights of ownership with
respect to Cardholder Data with respect to Cardholder Customers;
provided, however, that (x) no so-called "back-end" marketing of
Products or services by VVI to Cardholder Customers, other than through
Catalog Activities, shall include the use of the Marks or the offering
of the Card without MW's approval, which shall not unreasonably be
withheld, and (y) VVI will not, directly or indirectly, sell or lease
to parties other than Affiliates of VVI as of the date hereof any
Cardholder Data relating to Cardholder Customers to any Retailer or to
any Person which is engaged in the rendering of services which are in
competition with any of the MW Services as then offered by Signature.
In any sale or lease of Cardholder Data pertaining to Cardholder
Customers which is not prohibited pursuant to the preceding sentence,
VVI shall not make available any Cardholder Data pertaining to the
Cardholder Customer's past use of the Card or such Cardholder
Customer's creditworthiness, to the extent any such information was
obtained from the MW Group or the issuer of the Card.
(c) The obligations of the parties under paragraphs 16(a) and
16(b) shall survive the termination or expiration of this Agreement for
a period of five years after such termination or expiration.
16. Representations and Warranties. The parties make the following
representations and warranties to each other:
(a) MW makes the following representations and warranties to
VVI:
(i) MW is a corporation duly organized, existing and
in good standing under the laws of the State of Illinois;
(ii) MW has all necessary corporate authority, and it
has obtained all required consents, to enter into this
Agreement and the Related Agreements, and that such entry
shall not constitute a breach of any other material agreement
to which MW is a party or may be bound;
(iii) MW has obtained all necessary consents,
authorizations, orders or approvals, if any, of any
governmental authority or other person required on the part of
MW for the performance by MW or its agents of its obligations
under this Agreement and the Related Agreements;
(iv) MW possesses all material permits and licenses,
if any, necessary to the performance of its obligations under
this Agreement and the Related Agreements;
(v) No member of the MW Group is subject to, or
obligated under, any provision of (i) their respective
articles of incorporation or by-laws, (ii) any agreement,
arrangement or understanding, including, without limitation,
the HSN Agreements, (iii) any license, franchise or permit, or
(iv) any law, regulation, order, judgment or decree; that
would be breached or violated, or in respect of which a right
of termination or acceleration or any encumbrances on any of
their respective assets would be created, by the execution,
delivery and performance of this Agreement and the Related
Agreements by MW;
(vi) neither the execution and delivery of this
Agreement or the Related Agreements by MW and VVI, nor their
performance thereof in accordance with the terms thereof, will
result in a violation of any applicable law, regulations,
orders, rulings or agreements which violation would have a
material adverse effect on either MW or VVI;
(vii) MW is the user and owner of the entire right,
title and interest in and to the Marks in the United States
subject to any licenses that have previously been granted;
(viii) MW has no knowledge of any infringement in the
United States of the rights granted under the Restated
Servicemark License Agreement by any third party; and
(ix) MW has not granted any rights to any third party
that conflict with the rights granted under the Restated
Servicemark License Agreement.
(b) VVI makes the following representations and warranties to
MW:
(i) VVI is a corporation duly organized, existing and
in good standing under the laws of the State of Minnesota;
(ii) VVI has all necessary corporate authority, and
has obtained all required consents, to enter into this
Agreement and the Related Agreements and that such entry shall
not constitute the breach of any other material agreement to
which VVI is a party or may be bound;
(iii) VVI has obtained all necessary consents,
authorizations, orders or approvals, if any, of any
governmental authority or other person required on the part of
VVI for the performance by VVI or its agents of its
obligations under this Agreement and the Related Agreements;
(iv) VVI possesses all material permits and licenses,
if any, necessary to the performance of its obligations under
this Agreement and the Related Agreements; and
(v) VVI is not subject to, or obligated under, any
provision of (i) its articles of incorporation or by-laws,
(ii) any agreement, arrangement or understanding, (iii) any
license, franchise or permit, or (iv) any law, regulation,
order, judgment or decree; that would be breached or violated,
or in respect of which a right of termination or acceleration
or any encumbrances on any of its assets would be created, by
the execution and delivery of this Agreement and the Related
Agreements by VVI or the performance of this Agreement or the
Related Agreements.
(c) The representations and warranties of the parties made in
this Section 17 shall survive the execution of this Agreement for an
eighteen month period.
17. Other Obligations of the Parties. The parties make the following
affirmative covenants to each other:
(a) MW makes the following affirmative covenants to VVI:
(i) MW will comply in all material respects with all
applicable laws and regulations which affect the performance
in any material respect of MW's obligations under this
Agreement and the Related Agreements.
(ii) MW shall not grant any rights to any third party
that conflict with the rights granted under the Restated
Servicemark License Agreement.
(b) VVI makes the following affirmative covenants to MW:
(i) VVI will comply in all material respects with all
applicable laws and regulations which affect the performance
in any material respect of VVI's obligations under this
Agreement and the Related Agreements; provided, however, that
this covenant shall not be deemed to apply to laws and
regulations with respect to the legality of the proposed use
of the Card or the Revolving Charge Plan (as defined in the
Receivables Sale and Purchase Agreement) in accordance with
the Receivables Sale and Purchase Agreement;
(ii) not later than ninety (90) days after the end of
each fiscal year of VVI, commencing with the fiscal year
ending January 31, 1998, VVI shall give to MW a written
statement, certified as accurate by VVI's chief financial
officer, setting forth a detailed computation of gross and net
sales of Products through Catalog Activities for the preceding
fiscal year. MW shall have the right, exercisable upon
reasonable prior notice, to inspect and copy VVI's books and
records relating to the foregoing computations.
18. Term. Unless sooner terminated pursuant to paragraph 22 hereof, the
term of this Amended and Restated Operating Agreement shall commence on the date
hereof and end on July 31, 2008.
19. Events of Default.
(a) The occurrence of any of the following circumstances shall
be an Event of Default by MW:
(i) MW or any member of the MW Group, as applicable,
shall be in material default of its material obligations under
this Agreement or the Related Agreements, and such material
default shall not have been cured within 90 days after notice
thereof is given by VVI to MW; or
(ii) any of MW's representations and warranties
contained herein shall have been untrue in a material respect
when made.
(b) It shall be an Event of Default by VVI upon the occurrence
of any of the following circumstances:
(i) VVI shall be in material default of its material
obligations under this Agreement or the Related Agreements and
such material default shall not have been cured within 90 days
after written notice thereof is given by MW to VVI; or
(ii) any of VVI's representations and warranties
contained herein shall have been untrue in a material respect
when made.
20. Termination Rights. The parties shall have the following rights to
terminate this Agreement, or portions thereof, prior to the expiration of the
term set forth in Section 19:
(a) MW shall have the right to terminate those provisions of
this Agreement and the Related Agreements which permit VVI to engage in
Catalog Activities through the use of the Marks and /or the Card, and
which preclude the MW Group from engaging in Catalog Activities, if the
net sales of VVI and its Affiliates from Catalog Activities for any two
consecutive fiscal years (commencing February 1, 1997) through the use
of the Marks and/or the offering of the Card shall be less than
$40,000,000 per year. For the purposes of the preceding sentence:
(i) net sales shall mean gross sales, less returns,
allowances and discounts and shall not include Taxes; and
(ii) the foregoing right shall be exercisable during
a 90 day period commencing on the date which is 90 days after
the end of the second such calendar year. If the foregoing
right is not so exercised, the first of such calendar years
shall be ignored for the purposes of determining whether MW
shall again have the right to terminate said provisions in the
event the net sales of VVI and its Affiliates from Catalog
Activities through the use of the Marks and/or the Card for
the current year shall be less than $40,000,000;
(b) MW shall have the right to terminate those portions of
this Agreement which pertain to Television Home Shopping if VVI shall
cease to engage in Television Home Shopping, or in substantially
similar Product merchandising- focused television programming.
Termination pursuant this Section 21(b) shall be effective on the date
such notice is given;
(c) VVI may terminate this Agreement upon the occurrence of
any of the following events:
(i) if during any month, MW fails to pay to VVI or to
Cable Systems (where such failure to pay Cable Systems results
in VVI being required to pay an additional amount to the Cable
System, and MW has not reimbursed VVI for such additional
amount) a minimum of 75% of the aggregate dollar amount
required to be paid by MW during said month pursuant to all
outstanding Advertising Commitments, other than by reason of a
breach or default by such Cable System, and such failure is
not cured by MW within 60 days after written notice thereof is
given to MW by VVI, then VVI may terminate this Agreement upon
written notice to MW given at any time during the 30 day
period immediately following the expiration of such 60 day
cure period;
(ii) a petition shall be filed by or against MW under
any chapter of the Bankruptcy Code (and, if filed against MW,
such petition shall not be dismissed within sixty days
thereafter), MW shall make an assignment for the benefit of
creditors or a composition with creditors, MW shall admit in
writing its inability to pay its debts as they become due, or
a receiver shall be appointed for MW or any of its material
assets; or
(iii) an Event of Default with respect to MW shall
occur and be continuing.
Termination pursuant to any subparagraph of this Section 21(c) shall be
effective on the date such notice is given;
(d) MW may terminate this Agreement upon the occurrence of any
of the following events:
(i) a petition shall be filed by or against VVI under
any chapter of the Bankruptcy Code (and, if filed against VVI,
such petition shall not be dismissed within sixty days
thereafter), VVI shall make an assignment for the benefit of
creditors or a composition with creditors, VVI shall admit in
writing its inability to pay its debts as they become due, or
a receiver shall be appointed for VVI or any of its material
assets; or
(ii) an Event of Default with respect to VVI shall
occur and be continuing.
Termination pursuant to any subparagraph of this Section 21(c) shall be
effective 60 days after the date on which such notice is given.
Termination of this Agreement shall operate as a concurrent termination of the
Related Agreements.
21. Effects of Termination. Neither party shall have any liability to
the other party solely by reason of the termination of this Agreement in
accordance with paragraph 21, other than by reason of an Event of Default. No
termination of this Agreement or the Related Agreements shall affect any
obligation of a party under such documents which arose prior to termination,
except as provided therein, or any obligations of VVI or MW under Section 3.1,
3.2 and 3.5 of the Receivables Sale and Purchase Agreement in respect of credit
authorizations or Credit Sales arising prior to termination, and Customer
Credits and chargebacks relating to such credit authorizations or Credit Sales.
Notwithstanding any other provision of this Agreement to the contrary, the
termination of this Agreement shall terminate each party's obligations
hereunder, with the exception of obligations under paragraphs 10, 16, 17,
19(b)(ii), 23, 24, 25, 26, 27 and 28, all of which shall survive any termination
of this Agreement for the periods (if any) set forth therein and, in the absence
of a stated survival period, indefinitely.
22. VVI Indemnification Covenants.
(a) VVI shall indemnify, defend and hold harmless the MW
Group, and their respective officers, directors, employees, agents,
representatives, successors and assigns (collectively, "MW
Indemnitees") from and against all liability, demands, claims, actions
or causes of action, assessments, losses, fines, penalties, costs,
damages and expenses, including, without limitation, reasonable fees
and disbursements of counsel and witness fees, (collectively, "MW
Claims") which are sustained or incurred by such Person as a result of,
or arising out of or by virtue of:
(i) the failure of VVI to comply in all material
respects with, or the material breach by VVI of any
representation or warranty of VVI or of any of the material
covenants of this Agreement or the Related Agreements to be
performed by VVI (including, without limitation, this
paragraph 23);
(ii) product liability claims relating to any Product
purchased by a viewer or customer from VVI, other than
Products sold by MW to VVI which were defective or dangerous
at the time of delivery to VVI or, if the Product was
drop-shipped directly to the customer by MW, delivery to the
customer;
(iii) material dilution, disparagement, or loss of
good will to any of the Marks as a result of VVI's material
breach of the Restated Servicemark License Agreement; or
(iv) VVI's failure to comply in all material respects
with all applicable laws and regulations materially affecting
the performance by VVI of its obligations under this Agreement
and the Related Agreements; provided, however, that this
paragraph (iv) shall not apply with respect to the Receivables
Sale and Purchase Agreement to the extent it would, but for
this proviso, apply to the legality of the proposed use of the
Card or the Revolving Charge Plan (as defined in the
Receivables Sale and Purchase Agreement) in accordance with
the Restated Receivables Sale and Purchase Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, VVI shall be liable to indemnify the MW Indemnitees only if
the aggregate amount of MW Claims exceeds $100,000, in which event MW
shall be entitled to indemnification for all MW Claims.
(c) The indemnification covenants provided in this paragraph
23 shall survive the termination of this Agreement until two years
after the termination hereof, except with respect to claims made by
governmental entities or other third parties, with respect to which the
indemnification covenants shall survive until four years after the
termination hereof. Any indemnification claim which is asserted by an
MW Indemnitee during the applicable survival period shall survive until
the final disposition thereof.
23. MW Indemnification Covenants.
(a) MW shall indemnify, defend and hold harmless VVI, its
Affiliates, and their respective officers, directors, employees,
agents, representatives, successors and assigns (collectively, "VVI
Indemnitees") from and against all liability, demands, claims, actions
or causes of action, assessments, losses, fines, penalties, costs,
damages and expenses, including, without limitation, fees and
disbursements of counsel and witness fees, (collectively, "VVI Claims")
which are sustained or incurred by any such Person as a result of, or
arising out of or by virtue of:
(i) the failure of MW to comply in all material
respects with, or the material breach by MW of any
representation or warranty of MW or any of the material
covenants of this Agreement or the Related Agreements to be
performed by MW (including, without limitation, this paragraph
24);
(ii) any challenge to the validity of any of the
Marks in the United States or right to the limited license of
any of the Marks, or any claim that any of the Marks infringe
in the United States on the rights of a third party, as a
result of any authorized use by VVI of any of the Marks
pursuant to the Restated Servicemark License Agreement;
(iii) product liability claims relating to any
Products sold by VVI to its viewers or customers which were
sold by MW to VVI and were defective or dangerous at the time
of delivery to VVI, or, if the Product was drop-shipped
directly to the customer by MW, delivery to the customer;
(iv) MW's failure to comply in all material respects
with all applicable laws and regulations materially affecting
the performance by MW of its obligations under this Agreement
or the Related Agreements, including, without limitation, any
failure of the Card or transactions under the Receivables Sale
and Purchase Agreement to comply with all applicable laws,
regulations, orders, rulings or agreements if used in
compliance with the Receivables Sale and Purchase Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, MW shall be liable to indemnify VVI only if the aggregate
amount of VVI Claims exceeds $100,000, in which event VVI shall be
entitled to indemnification for all VVI Claims.
(c) The indemnification covenants provided in this paragraph
24 shall survive the termination of this Agreement until two years
after the termination hereof, except with respect to claims made by
governmental entities or other third parties, with respect to which the
indemnification covenants shall survive until four years after the
termination hereof. Any indemnification claim which is asserted by a
VVI Indemnitee during the applicable survival period shall survive
until the final disposition thereof.
24. Rights Upon Indemnification. The rights of the MW Indemnitees and
the VVI Indemnitees with respect to claims asserted by any Person other than the
MW Indemnitees and the VVI Indemnitees shall be governed by the following:
(a) For the purposes of this paragraph 25, an "Indemnified
Party" shall be an MW Indemnitee or VVI Indemnitee (as the case may
be), who is entitled to indemnification pursuant to paragraph 23 or 24,
and an "Indemnifying Party" shall be either MW or VVI, to the extent MW
or VVI shall have an obligation of indemnification pursuant to
paragraph 23 or 24.
(b) Promptly after receipt by an Indemnified Party of notice
of the commencement of any action which may result in a claim for
indemnification pursuant to either paragraph 23 or 24, the Indemnified
Party will notify the Indemnifying Party thereof within a reasonable
time thereafter. The failure so to notify any Indemnifying Party will
not relieve it of any liability for indemnification hereunder as to the
particular item for which indemnification may then be sought except to
the extent that the failure to give notice shall have been prejudicial
to the Indemnifying Party.
(c) An Indemnified Party shall have the right (i) to employ
separate counsel in any action as to which indemnification shall be
sought under paragraph 23 or 24 of this Agreement and to participate in
the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party unless (x) the Indemnifying
Party has agreed in writing to pay such fees and expenses, (y) the
Indemnifying Party has failed to assume the defense thereof and employ
counsel within a reasonable period of time after being given the notice
required above, and as a consequence thereof, the Indemnified Party has
employed separate counsel to protect its rights, or (z) the named
parties to any such action (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party and such
Indemnified Party shall have reasonably concluded that representation
of the Indemnified Party and the Indemnifying Party by the same counsel
would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has
been proposed) due to actual or reasonably anticipated conflicts of
interest between the Indemnified Party and the Indemnifying Party in
the conduct of the defense of such action (in which case the
Indemnifying Party shall not have the right to direct the defense on
behalf of the Indemnified Party). It is understood, however, that the
Indemnifying Party shall, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only
one separate firm of attorneys (in addition to any local counsel) at
any time for all such Indemnified Parties having actual or reasonably
anticipated conflicts of interest with the Indemnifying Party.
(d) In any case in which the Indemnifying Party has assumed
the defense of the claim or has agreed to pay the fees and expenses of
counsel for the Indemnified Party, the Indemnifying Party shall not be
liable for any settlement of such action effected by the Indemnified
Party without the written consent of the Indemnifying Party, which
consent shall not unreasonably be withheld. No failure of an
Indemnifying Party to assume the defense of a claim or agree to pay the
fees and expenses of counsel for the Indemnified Party shall relieve
the Indemnifying Party of any obligation of indemnification which such
party shall have under Section 23 or 24 hereof.
(e) The indemnification provided in paragraphs 23 and 24 is
for the benefit of the MW Indemnitees and the VVI Indemnitees only, and
shall not be deemed to create any right (to indemnification or
otherwise) for any other Person.
25. Non-Solicitation. For a period of two years following termination
of this Agreement for any reason, no member of the MW Group shall employ or
solicit the employment of any officers, executive employees, or on-air hosts of
VVI, or any of the other persons named in Exhibit A to that certain
confidentiality letter, dated December 4, 1994 (or persons performing similar
functions).
26. Prevailing Party. If the parties hereto become parties to any
litigation, commenced by or against one another involving the enforcement of any
rights or remedies under this Agreement or any of the Related Agreements, or
arising on account of a default of the other party in its performance of such
party's obligations under any of the foregoing, the prevailing party in such
litigation shall be entitled to reimbursement of all of its reasonable legal
fees, costs, and expenses incurred in connection with such litigation,
(including allocated costs of internal counsel) and interest accrued thereon
from the date of judgment, at the maximum rate permitted by law.
27. Relationship. This Agreement and the Related Agreements are not and
shall not be construed as an agreement of lease, partnership, agency or
employment of (x) VVI or of any of VVI's employees or agents by MW, or (y) MW or
any of MW's employees or agents by VVI. The parties acknowledge and agree that
the parties are independent contractors whose operations are independent,
separate and apart from that of the other. Neither shall order any merchandise,
incur any indebtedness, enter into any undertaking or make any commitment in the
other party's name or purporting to be on the other party's behalf, except with
the other party's prior written approval. Neither party will represent, suggest
or indicate in any way to any of its customers, suppliers, printers, service
companies or other business entities that it is financially affiliated with,
backed, supported, maintained or assisted by the other in any manner, except as
may be required to implement the terms of this Agreement and with the other
party's prior written approval.
28. Publicity. VVI and MW will jointly be responsible for initiating
news releases and related announcements concerning this Agreement and the
Related Agreements. Disclosures required by applicable law or regulation for
either VVI or MW will be exempt from prior approval but will be provided in
advance to the other party.
29. Additional Actions and Documents. Each of the parties hereto agrees
to take or cause to be taken such further actions, to execute, acknowledge,
deliver and file or cause to be executed, acknowledged, delivered and filed such
further documents and instruments, and to use all reasonable efforts to obtain
such consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement and the
Related Agreements.
30. Notices. All notices, demands, requests or other communications
which may be or are required to be given pursuant to this Agreement or any of
the Related Agreements shall be in writing and shall be personally delivered,
mailed by first-class,registered or certified mail, postage prepaid, or sent by
electronic or facsimile transmission, addressed as follows:
If to VVI:
ValueVision International, Inc.
6740 Shady Oak Road
Minneapolis, Minnesota 55344
Attention: Chief Executive Officer
with a copy to:
Maslon, Edelman, Borman & Brand, a
professional limited liability partnership
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
Attention: William M. Mower
If to MW:
Montgomery Ward & Co., Incorporated
619 West Chicago Avenue
Chicago, Illinois 60671
Attention: General Counsel
with a copy to:
Altheimer & Gray
Suite 4000
10 South Wacker Drive
Chicago, Illinois 60606
Attention: Myron Lieberman
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication which shall be delivered, mailed
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent or received for all purposes at such time as it is delivered to the
addressee or at such time as delivery is refused by the addressee upon
presentation.
31. Severability. Whenever possible, each provision of this Agreement
and the Related Agreements shall be interpreted in such a manner as to be
effective and valid under applicable law, but if one or more of the provisions
of any of such documents are subsequently declared invalid or unenforceable,
such invalidity or unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions of such documents, which shall be
applied and construed so as to reflect substantially the intent of the parties
and achieve the same economic effect as originally intended by the terms hereof,
unless those provisions which are invalidated or unenforceable are material to
the performance of either party's affirmative or negative obligations under the
relevant agreement, in which case the entire such agreement shall be terminable,
at the option of the party whose rights thereunder have been adversely affected
thereby, provided that such party must exercise its option to terminate such
agreement within ninety (90) days following the date on which such provision is
declared or determined to be invalid, voidable or unenforceable and the other
party must be given sixty (60) days in which to agree to a valid modification of
such agreement which would substantially eliminate such adverse effects.
32. Force Majeure. No party shall be liable for any failure of or delay
in the performance of this Agreement or the Related Agreements for the period
that such failure or delay is due to acts of God, public enemy, war, strikes or
labor disputes, or any other cause beyond the parties' reasonable control, it
being understood that lack of financial resources is not to be deemed a cause
beyond a party's control. If the delay or failure caused by such force majeure
condition shall continue for more than ninety (90) days, the party which did not
suffer the event shall have the right, in its sole discretion, to terminate this
Agreement, by giving notice to the other party of its election to terminate.
Each party shall notify the other party promptly of the occurrence of any such
cause and carry out this Agreement or any of the Related Agreements as promptly
as practicable after such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of any agreement.
33. Waivers. Neither the waiver by any party hereto of a breach of or a
default under any of the provisions of this Agreement or any of the Related
Agreements, nor the failure of any party hereto, on one or more occasions, to
enforce any of the provisions of any of said documents or to exercise any right,
remedy or privilege hereunder shall thereafter be construed as a waiver of any
such provisions, rights, remedies or privileges hereunder. Any of the terms,
covenants, representations, warranties, or conditions hereof and thereof may be
waived only by a written instrument executed by the party waiving compliance.
34. Exercise of Rights. No failure or delay on the part of any party
hereto in exercising any right, power or privilege under this Agreement or any
of the Related Agreements, and no course of dealing between the parties hereto
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under any of such documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
35. Binding Effect. Subject to the provisions hereof and thereof
restricting assignment, this Agreement and the Related Agreements shall be
binding upon and shall inure to the benefit of the parties and their respective
successors and permitted assigns.
36. Entire Agreement. This Agreement and the Related Agreements contain
the entire agreement between the parties hereto with respect to the matters
contained herein and therein, and supersede all prior oral or written
agreements, commitments or understandings with respect to the matters provided
for herein.
37. Pronouns. All pronouns and any variations thereof used in this
Agreement and the Related Agreements shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the Person or the
context may require.
38. Headings. Section headings contained in this Agreement and the
Related Agreements are inserted for convenience of reference only, shall not be
deemed to be a part of such Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
39. Governing Law. This Agreement and the Related Agreements, the
rights and obligations of the parties hereto and thereto, and any claim or
disputes relating to any thereof, shall be governed by and construed in
accordance with the internal laws of the State of Illinois, without giving
effect to the principles of conflicts of laws thereof.
40. Execution in Counterparts. To facilitate execution, this Agreement
and the Related Agreements may each be executed in as many counterparts as may
be required, and it shall not be necessary that the signatures of, or on behalf
of, each party, or that the signatures of all Persons required to bind any
party, appear on each counterpart; but it shall be sufficient that the signature
of, or on behalf of, each party, or that the signatures of the Persons required
to bind any party, appear on one or more of the counterparts. All counterparts
shall collectively constitute a single agreement. It shall not be necessary in
making proof of this Agreement or any of the Related Agreements to produce or
account for more than the number of counterparts containing the respective
signatures of, or on behalf of, all of the parties hereto.
41. Assignment. Neither party may assign its rights under this
Agreement or any of the Related Agreements without the consent of the other
party, which consent may be granted or withheld in the sole discretion of such
other party. No permitted assignment shall relieve the assignor of its
obligations (which shall be primary and which may be discharged in whole or in
part by the assignee) under this Agreement or the Related Agreements. Any
unauthorized assignment and any assignment made in contravention of this Section
42 shall be null and void.
42. Time. Time is to be considered of the essence for the purposes of
this Agreement and the Related Agreements.
43. Amendments and Modification. This Agreement and the Related
Agreements may only be amended or modified by a subsequent written agreement by
the parties hereto.
44. Construction. This Agreement and the Related Agreements shall not
be construed more strictly against one party than against the other merely by
virtue of the fact that such document may have been prepared primarily by
counsel for one of the parties, it being recognized that both parties have
contributed substantially and materially to the preparation of such documents.
45. Restructuring of MW Group. As of the date hereof, the MW Group is
exploring various potential strategic options and restructurings, including
without limitation the potential sale of equity in MW to an investor and an
entire or partial disposition of Signature, such as by means of a spin-off or an
initial public offering (any such transactions being referred to herein as a
"Restructuring"). Provided that as a result of any such Restructuring, MW (or
any successor thereof in the Restructuring) shall remain obligated to perform
all of its obligations under this Agreement and the Related Agreements, and
Signature (or any successor thereof in the Restructuring) shall become obligated
to perform all of its obligations under this Agreement and the Related
Agreements, VVI (i) hereby consents to the Restructuring, and (ii) agrees to
execute such amendments to this Agreement as counsel for MW shall deem to be
reasonably necessary in order to reflect the effects of the Restructuring on
this Agreement and the Related Agreements, including without limitation the
possibility that Signature could cease to be an Affiliate of MW by virtue of the
Restructuring.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first set forth above.
MONTGOMERY WARD & VALUEVISION INTERNATIONAL, INC.
CO., INCORPORATED
BY:________________________________ BY:___________________________________
TITLE:_____________________________ TITLE:____________________________
Robert L. Johander and Nicholas M. Jaksich hereby join in the foregoing
Agreement for the sole purpose of agreeing to be bound by clause (ii) of
paragraph 11 thereof.
/s/ Robert L. Johander /s/ Nicholas M. Jaksich
- ----------------------------------- ----------------------------------
Robert L. Johander Nicholas M. Jaksich
EXHIBIT C
AGREEMENT
THIS AGREEMENT is made as of July 27, 1996 between Signature
Financial/Marketing, Inc., a Delaware corporation ("Signature") and ValueVision
International, Inc., a Minnesota corporation ("VVI"), which term shall include
VVI's Affiliates.
R E C I T A L S
A. Signature and its subsidiaries are subsidiaries of Montgomery Ward &
Co., Incorporated, an Illinois corporation ("MW"). Signature and its
subsidiaries are referred to herein collectively as the "Signature Companies".
B. Pursuant to an Asset Purchase Agreement of even date herewith,
Montgomery Ward Direct, L.P., a Delaware limited partnership which is a wholly
owned subsidiary of MW ("MWD") is selling, and ValueVision Direct Marketing
Company, Inc., a Minnesota corporation which is a wholly owned subsidiary of VVI
is purchasing, substantially all of the assets of MWD. Following the purchase of
such assets, VVI will engage in a direct-mail and catalog business using certain
service marks of MW and offering MW's private label credit card, pursuant to an
Amended and Restated Operating Agreement of even date herewith between MW and
VVI (the "Amended and Restated Operating Agreement"). Capitalized terms which
are not otherwise defined herein shall have the meanings ascribed to them in the
Amended and Restated Operating Agreement.
C. VVI desires that the Signature Companies provide certain services to
VVI in connection with the VVI Catalog Business, and Signature desires to cause
the Signature Companies to provide such services.
D. Signature desires that, in connection with both Television Home
Shopping and the VVI Catalog Business, VVI promote both the use of the Card and
credit protection programs offered from time to time by the Signature Companies,
and VVI is willing to do so.
A G R E E M E N T S
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. List Support Services. For a period of three years, commencing on
the date hereof, Signature shall cause the Signature Companies to provide the
following list support services to VVI for the benefit of the VVI Catalog
Business (collectively, "Services"):
(a) the Signature Companies will provide list selection
support for the VVI Catalog Business, consisting of the following:
(i) prospecting for new buyers from the marketing
activity file;
(ii) selections of existing catalog buyers to
stimulate repeat purchasing, from the catalog buyer file which
presently is maintained for MWD by Fingerhut Companies, Inc.;
(iii) assistance in selection of potential catalog
buyers from customer lists rented or otherwise obtained
by VVI;
(iv) supplying marketing activity file and Cardholder
extract file data to VVI for its own research, modeling and
analysis, including the merge/purge of the data with VVI's
data file; and
(v) consulting with VVI employees related to any
modeling or research that VVI may conduct on its own.
List selection support shall include selection of promotable accounts,
elimination of do not solicits, merge/purge across lists, application
of scoring systems, and creation of final output files. VVI will
provide criteria to the Signature Companies from time to time in order
for the Signature Companies to generate mailing lists meeting VVI's
criteria. Signature will provide a magnetic tape or disc, on a monthly
basis, in machine readable form, for use by VVI in mailing catalogs to
customers and prospective customers in accordance with the rights
granted under the Operating Agreement and the Related Agreements. Such
list selection support shall be of a nature comparable to that which
Signature provides itself in the conduct of its own businesses;
(b) the Signature Companies will provide such research support
for the VVI Catalog Business as VVI shall reasonably require, including
creation of scoring systems, back-end analysis of mailings, and
recommendations of file depth for scored mailings. Research will also
include special analyses such as merchandise cross shopping habits or
frequency of purchase across cardholders. Such research support shall
be in the form of written reports or analyses of data in a form
comparable to that used by Signature in the conduct of its own
businesses;
(c) in providing Services for VVI, Signature shall use the
same standard of care as it uses with respect to the processing of its
own data of similar kinds. Signature shall use its existing data
processing systems for the provision of Services and shall not be
required to acquire any additional computer hardware or software.
Signature shall provide the services of trained associates, who shall
devote substantially all of their business time and attention to the
performance of Services pursuant to this Agreement. Signature presently
estimates that the services of four associates shall be required for
the performance of Services, but staffing levels shall be in
Signature's sole discretion;
(c) as compensation for the Services to be rendered pursuant
to this paragraph 1, VVI shall reimburse Signature for its out of
pocket costs for performing such Services, including (i) salaries or
wages, fringe benefits and employment taxes with respect to associates
dedicated to the performance of Services, (ii) any necessary travel or
other out of pocket expenses, (iii) costs of media and postage, and
(iv) cost of data overlays. Signature shall provide monthly invoices to
VVI, setting forth the amounts of such costs in reasonable detail with
respect to the previous month. Terms of payment of such invoices shall
be net 30 days from the invoice dates. In the event VVI shall fail to
pay any invoice when due, and such failure shall continue for a period
of 30 days after Signature shall have delivered written notice to VVI,
Signature shall have the right to suspend the furnishing of Services
until such delinquency has been cured.
2. Credit Insurance Products. In connection with the VVI Catalog
Business and Television Home Shopping, Signature shall make available for sale
by VVI from time to time those credit insurance products which Signature deems
appropriate, and shall provide to VVI, without charge, a reasonable number of
copies of all literature used generally by Signature in connection with the
promotion of such insurance products for use by VVI in catalog mailings to its
customers. Signature shall have the sole right to approve any application for a
credit insurance product procured by VVI. VVI shall refer all such customers who
express an interest in purchasing credit insurance to a licensed insurance agent
(who may be an employee of one of the Signature Companies) for the sale of such
credit insurance product. For each approved application for such a credit
insurance product, Signature shall cause one of the Signature Companies to pay
to VVI the sum of $25. Such payments shall be made monthly with respect to
applications accepted during the preceding month.
3. Card Solicitations. Pursuant to the Restated Receivables Sale and
Purchase Agreement, VVI shall have the right to offer the use of the Card to
prospective purchasers of Product through Television Home Shopping or the VVI
Catalog Business. For each approved application for a Card which VVI shall
procure, Signature shall cause one of the Signature Companies to pay to VVI the
sum of $5. Such payments shall be made monthly with respect to applications
approved during the preceding month.
4. Term. Subject to the remainder of this paragraph 4, the provisions
of paragraphs 2 and 3 shall continue in effect for the duration of the Term. In
the event the Operating Agreement shall be terminated for any reason prior to
the end of the Term, this Agreement shall terminate concurrently with the
termination of the Operating Agreement. No termination of this Agreement shall
affect any rights which arose prior to termination.
5. Notices. All notices, demands, requests or other communications
which may be or are required to be given pursuant to this Agreement or any of
the Related Agreements shall be in writing and shall be personally delivered,
mailed by first-class,registered or certified mail, postage prepaid, or sent by
electronic or facsimile transmission, addressed as follows:
If to VVI:
ValueVision International, Inc.
6740 Shady Oak Road
Minneapolis, Minnesota 55344
Attention: Chief Executive Officer
with a copy to:
Maslon, Edelman, Borman & Brand, a
professional limited liability partnership
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
Attention: William M. Mower
If to Signature:
Signature Financial/Marketing, Inc.
200 N. Martingale Road
Schaumburg, Illinois 60173-2096
Attention: General Counsel
with a copy to:
Altheimer & Gray
Suite 4000
10 South Wacker Drive
Chicago, Illinois 60606
Attention: Myron Lieberman
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication which shall be delivered, mailed
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent or received for all purposes at such time as it is delivered to the
addressee or at such time as delivery is refused by the addressee upon
presentation.
6. Severability. Whenever possible, each provision of this Agreement
and the Related Agreements shall be interpreted in such a manner as to be
effective and valid under applicable law, but if one or more of the provisions
of any of such documents are subsequently declared invalid or unenforceable,
such invalidity or unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions of such documents, which shall be
applied and construed so as to reflect substantially the intent of the parties
and achieve the same economic effect as originally intended by the terms hereof,
unless those provisions which are invalidated or unenforceable are material to
the performance of either party's affirmative or negative obligations under the
relevant agreement, in which case the entire such agreement shall be terminable,
at the option of the party whose rights thereunder have been adversely affected
thereby, provided that such party must exercise its option to terminate such
agreement within ninety (90) days following the date on which such provision is
declared or determined to be invalid, voidable or unenforceable and the other
party must be given sixty (60) days in which to agree to a valid modification of
such agreement which would substantially eliminate such adverse effects.
7. Force Majeure. No party shall be liable for any failure of or delay
in the performance of this Agreement or the Related Agreements for the period
that such failure or delay is due to acts of God, public enemy, war, strikes or
labor disputes, or any other cause beyond the parties' reasonable control, it
being understood that lack of financial resources is not to be deemed a cause
beyond a party's control. If the delay or failure caused by such force majeure
condition shall continue for more than ninety (90) days, the party which did not
suffer the event shall have the right, in its sole discretion, to terminate this
Agreement, by giving notice to the other party of its election to terminate.
Each party shall notify the other party promptly of the occurrence of any such
cause and carry out this Agreement as promptly as practicable after such cause
is terminated; provided, however, that the existence of any such cause shall not
extend the term of any agreement.
8. Waivers. Neither the waiver by any party hereto of a breach of or a
default under any of the provisions of this Agreement , nor the failure of any
party hereto, on one or more occasions, to enforce any of the provisions of any
of said documents or to exercise any right, remedy or privilege hereunder shall
thereafter be construed as a waiver of any such provisions, rights, remedies or
privileges hereunder. Any of the terms, covenants, representations, warranties,
or conditions hereof and thereof may be waived only by a written instrument
executed by the party waiving compliance.
9. Exercise of Rights. No failure or delay on the part of any party
hereto in exercising any right, power or privilege under this Agreement, and no
course of dealing between the parties hereto shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any of such documents preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
10. Binding Effect. Subject to the provisions hereof and thereof
restricting assignment, this Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
11. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the matters contained herein and
therein, and supersede all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.
12. Pronouns. All pronouns and any variations thereof used in this
Agreement and the Related Agreements shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the Person or the
context may require.
13. Headings. Section headings contained in this Agreement and the
Related Agreements are inserted for convenience of reference only, shall not be
deemed to be a part of such Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
14. Governing Law. This Agreement, the rights and obligations of the
parties hereto and thereto, and any claim or disputes relating to any thereof,
shall be governed by and construed in accordance with the internal laws of the
State of Illinois, without giving effect to the principles of conflicts of laws
thereof.
15. Execution in Counterparts. To facilitate execution, this Agreement
may each be executed in as many counterparts as may be required, and it shall
not be necessary that the signatures of, or on behalf of, each party, or that
the signatures of all Persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the Persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
16. Assignment. Neither party may assign its rights under this
Agreement without the consent of the other party, which consent may be granted
or withheld in the sole discretion of such other party. No permitted assignment
shall relieve the assignor of its obligations (which shall be primary and which
may be discharged in whole or in part by the assignee) under this Agreement. Any
unauthorized assignment and any assignment made in contravention of this Section
16 shall be null and void.
17. Time. Time is to be considered of the essence for the purposes of
this Agreement.
18. Amendments and Modification. This Agreement may only be amended or
modified by a subsequent written agreement by the parties hereto.
19. Construction. This Agreement shall not be construed more strictly
against one party than against the other merely by virtue of the fact that such
document may have been prepared primarily by counsel for one of the parties, it
being recognized that both parties have contributed substantially and materially
to the preparation of such documents.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date first set forth above.
SIGNATURE FINANCIAL/MARKETING, INC. VALUEVISION
INTERNATIONAL, INC.
BY:________________________________ BY:___________________________________
TITLE:_____________________________ TITLE:________________________________
EXHIBIT D
AMENDED AND RESTATED SERVICEMARK LICENSE AGREEMENT
THIS AMENDED AND RESTATED SERVICEMARK LICENSE AGREEMENT is made as of
this 27th day of July, 1996, by and between Montgomery Ward & Co., Incorporated,
an Illinois corporation ("MW"), and ValueVision International, Inc., a Minnesota
corporation ("VVI").
R E C I T A L S
A. MW and VVI are parties to a Servicemark License Agreement, dated as
of March 13, 1995 (the "Original Servicemark Agreement"). The Original Agreement
was entered into in connection with an Operating Agreement of even date herewith
(the "Original Operating Agreement"). The Original Servicemark Agreement granted
to VVI a license to use the "Marks" (as defined in the Original Servicemark
Agreement) in connection with VVI's television home shopping business.
B. Pursuant to a Restructuring Agreement of even date herewith (the
"Restructuring Agreement"), a wholly owned subsidiary of VVI will purchase
substantially all of the assets of Montgomery Ward Direct, L.P., a Delaware
limited partnership which is a wholly owned subsidiary of MW ("MWD"). MWD has
been engaged in the direct-mail business.
C. Pursuant to the Restructuring Agreement, the Original Operating
Agreement is being amended and restated, effective as of the date hereof, to
take into account the acquisition of the assets of MWD and its entry into the
direct-mail business (the "Amended and Restated Operating Agreement").
D. As contemplated by the Restructuring Agreement, the parties desire
to amend and restate the Original Servicemark Agreement to reflect the
acquisition of the assets of MWD and the effects of the amendment and
restatement of the Original Operating Agreement. Capitalized terms which are not
otherwise defined herein shall have the meanings ascribed to them in the Amended
and Restated Operating Agreement.
A G R E E M E N T S
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the Original
Servicemark Agreement is hereby amended and restated to read as follows:
I. LICENSE GRANT
Section 1.1 The License. During the term of this Servicemark License
Agreement, and subject to the terms and conditions hereof, MW hereby grants to
VVI the non-exclusive (except to the extent set forth in the Amended and
Restated Operating Agreement), nontransferable, nonassignable and royalty-free
right and license, without the right to grant sublicenses to any party, to use
the "Marks", as hereinafter defined, solely in the conduct of the "Permitted
Business", as herein defined, throughout the "Territory", as hereinafter
defined. For the purposes hereof, the term "Marks" shall include any future
stylized versions of any of the Marks which MW (or, in the case of the
"Lechmere" Mark, Lechmere, Inc.) may hereafter adopt. In connection with VVI's
television home shopping business, MW authorizes any cable system, television
station, or other cable or broadcast television outlet to which VVI provides
programming in accordance with this Servicemark License Agreement to transmit
such programming to its subscribers or viewers. For purposes of this Servicemark
License Agreement:
(a) the capitalized term "Marks" shall mean, collectively and
individually as the context may require, the MW Mark, as herein
defined, and the "Auxiliary Marks", as herein defined;
(b) the capitalized term "MW Mark" shall mean the servicemark
"Montgomery Ward", which is registered with the United States Patent
Office as No. 1,170,705;
(c) the capitalized term "Auxiliary Marks" shall mean the
servicemarks set forth on Exhibit A hereof, which may be amended from
time to time upon mutual agreement of the parties;
(d) the capitalized term "Permitted Business" shall mean
"Television Home Shopping" and "Catalog Activities", as such terms are
defined in the Amended and Restated Operating Agreement; and
(e) the capitalized term "Territory" shall mean (x), with
respect to Television Home Shopping, the United States of America, its
territories and possessions, and (y) with respect to Catalog
Activities, the world.
Notwithstanding anything to the contrary contained herein or in the Amended and
Restated Operating Agreement, MW acknowledges that because of the satellite
footprint, VVI's Television Home Shopping programming may be received outside of
the Territory in portions of Canada and Mexico, and MW further acknowledges and
agrees that VVI shall not be in violation hereof simply by virtue of the
reception of VVI's programming in such locations outside of the Territory.
Section 1.2 Use of the MW Mark. The MW Mark shall be used in any case
in which VVI promotes to its viewers or customers the use of the Card for the
making of purchases. As agreed between MW and VVI, VVI shall display the Marks
in connection with Television Home Shopping for other purposes as well, such as
an acknowledgment that a programming segment has been produced "in cooperation
with" MW or as the name of a programming segment, such as a program entitled
"Electric Ave. & More".
II. OWNERSHIP
Section 2.1 VVI Acknowledgment. VVI acknowledges (i) that MW is the
owner of the entire right, title and interest to and in the Marks, including any
inurements thereto, subject to any licenses that MW has previously granted; and
(ii) the validity of MW's title to the Marks. VVI agrees not to challenge or
cooperate in challenging MW's rights in the Marks, and, in connection therewith,
VVI further covenants and agrees that it shall not do any of the following:
(a) use the Marks or marks confusingly similar thereto, in
connection with the packaging, use, advertising, sale or distribution
of any merchandise or services other than as permitted by this
Agreement in connection with the conduct of the Permitted Business;
(b) apply for or seek registration anywhere at any time of the
Marks or marks confusingly similar thereto or assist any third party in
doing so (it being agreed that, when called upon in writing by MW
within a reasonable time after MW first learns of the registration or
use by VVI of words or marks that are confusingly similar to the Marks,
VVI shall, at the election and expense of MW, either assign to MW in
writing any rights which it might have therein or release and cancel
any rights of record which it might have therein); or
(c) use the Marks or any components or any words or marks
confusingly similar thereto, in any corporate, partnership or trade
name.
Nothing in this Section 2.1 is intended to give MW greater rights to the Marks
than are otherwise available to it under the Lanham Act, or any other statutory
or common law relating to marks or tradenames.
Section 2.2 MW Acknowledgment. MW shall not use or claim any rights in
any mark used by VVI in connection with the Permitted Business, other than the
Marks, other marks to which MW has rights, and marks that are confusingly
similar to the foregoing.
III. LABELING
Section 3.1 Legends. VVI shall, to the extent reasonably specified by
MW, accompany the use of the Marks with such legends as may be reasonably
required or desired for protecting the Marks or other purposes relating to this
Amended and Restated Servicemark License Agreement.
Section 3.2 Specifications. VVI shall comply with MW's reasonable
written specifications as to VVI's affixation, colors, and means of displaying
the Marks. MW shall contemporaneously herewith provide VVI with MW's written
specifications as to VVI's affixation, colors and means of displaying the Marks.
MW shall provide VVI with not less than forty-five (45) days advance written
notice of any changes to said specifications. VVI may continue to follow prior
specifications during said forty-five (45) days or until VVI has consumed all
materials prepared in accordance with said prior specifications, whichever first
occurs; provided, however, that MW may purchase said materials from VVI at VVI's
cost for said materials. The cost of preparation of any items required to comply
with revised MW specifications which are not consumable shall be borne as agreed
by the parties.
IV. QUALITY CONTROL AND COVENANTS
OF VVI
Section 4.1 Standards. In connection with the use by VVI of the Marks
in the Permitted Business, VVI expressly recognizes the importance to MW of MW's
reputation and goodwill and of maintaining high, uniformly applied standards of
quality in the selection, provision, advertising, marketing and distribution of
merchandise. Accordingly, VVI agrees that it shall:
(a) offer customer service (via a toll-free telephone number
for Television Home Shopping) for use by customers during VVI's normal
business hours, which currently are 8:30 a.m. to 5:00 p.m. Minneapolis,
Minnesota time, Monday through Friday;
(b) on average, fulfill customer orders (other than so called
"reservation orders" where the delay in shipping is disclosed to the
customer as part of the programming) within ten (10) days of receipt,
except for merchandise that is drop-shipped or that is subject to back
order or other delay on an exception basis, or for which shipment will
be delayed due to a force majeure condition (as defined in the Amended
and Restated Operating Agreement) it being expressly understood and
agreed that for purposes of this Agreement, orders shall be deemed
fulfilled when they leave the warehouse/fulfillment facility and are
loaded onto trucks for delivery to customers;
(c) offer merchandise of a quality that is substantially
similar to that offered in the television home shopping industry and
the direct-mail marketing industry in general;
(d) provide customers the right to return merchandise
purchased from VVI for a refund, on terms generally consistent with the
return policies of VVI, as provided in the Amended and Restated
Operating Agreement;
(e) provide order placement and order tracing services on a
timely basis, consistent with industry practices in the television home
shopping industry and the direct-mail industry;
(f) provide courteous customer service with respect to
customer inquiries on a timely basis, consistent with industry
practices in the television home shopping industry and the direct-mail
industry;
(g) comply in all material respects with all applicable laws
and regulations which specifically relate to consumer rights or the
performance in any material respect of VVI's obligations under this
Amended and Restated Servicemark License Agreement, the Operating
Agreement, or the Receivables Sale and Purchase Agreement, as amended;
and
(h) not offer to take or accept orders for merchandise in
quantities that materially exceed the quantities that VVI can arrange
to promptly ship within a reasonable time after the order is taken
consistent with practices in the television home shopping industry and
the direct-mail industry unless the delay in shipping is disclosed to
the customer as part of the VVI programming, including without
limitation so called "reservation orders", or unless the delay in
shipping is caused by MW.
Section 4.2 Provision of Materials for Inspection. Upon written request
of MW, VVI will provide copies or samples of the following materials (the
"Materials") to MW for its prior review and approval, which approval shall not
be unreasonably withheld or delayed:
(a) proposed written materials for use in connection with
merchandise or services offered in programming, catalogs or other
materials that utilize any of the Marks; and
(b) all advertising and promotional material and scripts of
any kind intended for use in connection with programming or direct-mail
marketing that utilizes any of the Marks.
All Materials shall be deemed to be confidential information of VVI that is
subject to Section 16 of the Amended and Restated Operating Agreement,
including, without limitation, the provisos of Section 16(b)(i), (ii) and (iii).
Section 4.3 MW Objections to the Use of the Marks. In the event that MW
reasonably objects to any of the Materials, or the merchandise or services
offered on programming or through direct- mail that utilizes the Marks
("Objectionable Products"), MW will notify VVI in writing of the specific
objectionable portions of the documents or scripts or Objectionable Products,
and VVI agrees not to (i) use the objectionable portions of the documents or
scripts to market or offer for sale merchandise or services, or (ii) offer the
Objectionable Products, in programming or through sale by direct-mail that in
any way utilizes the Marks. MW agrees that its objections will not be arbitrary
or capricious, but will be based on MW's good faith belief that the Materials or
Objectionable Products could reasonably be believed to be detrimental to MW, its
reputation, image or goodwill.
Section 4.4 Right to Inspect. VVI hereby agrees, upon reasonable
request, to permit MW, at all reasonable times, to inspect (i) the merchandise
to be marketed or sold by VVI in connection with the Marks and (ii) the methods
of VVI relating to the standards described in Section 4.1 (the "Section 4.1
Standards"), and VVI also agrees that any such inspection may occur on the
premises of VVI. Any information obtained by MW as a result of such inspection
shall be deemed to be confidential information of VVI that is subject to Section
16 of the Operating Agreement, including, without limitation, the provisos of
Section 16(b)(i), (ii) and (iii).
Section 4.5 Certain Assurances. During the term of this Servicemark
License Agreement, VVI covenants and agrees to provide MW, upon MW's reasonable
request, reasonable assurances of its material compliance with the Section 4.1
Standards. During the term of this Agreement VVI will not use or promote the use
of any credit cards or facilities other than the Card and other facilities
widely accepted by retailers generally in the market in question (including, but
not limited to, American Express, MasterCard, VISA, and Discover, but excluding
any such card or facility that uses the ValueVision trade name or servicemark,
or any other trade name or servicemark registered or controlled by VVI or its
affiliates, except as may be permitted by the Receivables Sale and Purchase
Agreement), provided that a Permitted ValueVision Card Use will be permitted (i)
during the term of the Receivables Sale and Purchase Agreement to the extent
permitted by the Receivables Sale and Purchase Agreement, and (ii) at any time
after the termination of the Receivables Sale and Purchase Agreement.
Section 4.6 Governmental Actions. During the term of this Agreement,
VVI hereby agrees that it will promptly provide MW copies of all complaints or
inquiries received by VVI from any governmental agency relating to or in
connection with the merchandise or services offered and sold in programming or
through direct-mail that in any way utilizes the Marks, including those relating
to any and all advertising or the terms and conditions with respect to the sale
of such merchandise or services to the public, provided that copies of such
complaints that are received from a governmental agency in response to isolated
customer complaints need only be so provided if they are material. VVI agrees
that, except to the extent a response is required by a governmental agency or by
applicable law, regulation or policy before it is reasonably possible to obtain
MW's comments or approval, it will not respond to any such complaint or inquiry
without submitting such response to MW for (i) MW's comments, not to be
unreasonably delayed, on the form and substance of VVI's response, and (ii) MW's
approval, not to be unreasonably withheld or delayed, of any response that
specifically relates to MW's Products, MW's Services, the Card or the Marks. In
no event shall VVI enter into any settlement agreement, consent decree, or other
arrangement with any governmental agency specifically relating to MW's
merchandise, services, credit card or Marks without the express written consent
of MW, which shall not be unreasonably withheld.
V. REGISTRATION, MAINTENANCE, POLICING AND PROTECTION
Section 5.1 Infringements or Challenges to the Marks. VVI shall
promptly advise MW of any infringements or challenges to its use of the Marks or
package simulations that shall come to VVI's attention. MW agrees to prosecute
any infringer of the MW Mark, or any infringer of any of the Auxiliary Marks if
such infringement of an Auxiliary Mark is reasonably likely to adversely affect
the Permitted Business. VVI will not sue any such infringer either in its own or
in the name of MW. Any recovery from a proceeding attributable to infringement
by a third party using a mark confusingly similar to any of the Marks, whether
by judgment or settlement, shall be paid to MW, except to the extent that such
damages specifically arise from the lost profits or similar damages to the
Permitted Business and the judgment entered specifically allocates a portion of
the judgment, after recovery of all of MW's costs and expenses, to VVI's lost
profits or damages to the Permitted Business. VVI shall not enter into a
settlement regarding an infringement involving the use of the Marks without the
prior written approval of MW. MW will obtain VVI's consent, not to be
unreasonably withheld or delayed, to any such settlement if it permits a
continuing use by the alleged infringer of the Marks that could reasonably have
an adverse impact on VVI's rights under this Amended and Restated Servicemark
License Agreement.
Section 5.2 Control of Litigation. To the extent that MW initiates any
lawsuit to abate such infringement, as described in Section 5.1, MW shall
control such litigation, and MW shall pay all of the costs and expenses of said
lawsuit, and shall have the right to select counsel with respect thereto. VVI
agrees to cooperate in any such litigation, at MW's expense, to the extent
reasonably required by MW.
VI. TERM AND TERMINATION
Section 6.1 Term. The Servicemark License Agreement shall take effect
upon the date first written above, and shall remain in effect until the date of
termination of the Amended and Restated Operating Agreement.
Section 6.2 Termination of Use of the Marks. In the event of the
termination of this Amended and Restated Servicemark License Agreement, VVI
shall forthwith cease to use, and not thereafter resume the use, of the Marks or
any confusingly similar marks, alone or in combination with any letters, other
words, or designs, in any manner.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Servicemark License Agreement effective as
of the date first set forth above.
VALUEVISION INTERNATIONAL, INC.,
a Minnesota corporation
By________________________________________
Its_______________________________________
MONTGOMERY WARD & CO., INCORPORATED,
an Illinois corporation
By _______________________________________
Its_______________________________________
Lechmere, Inc., a wholly owned subsidiary of MW, joins in the foregoing
agreement for the purposes of granting a license to the Mark "Lechmere", and any
stylized versions hereof which are hereafter adopted by Lechmere, Inc., subject
to all of the terms and conditions of this Agreement.
LECHMERE, INC.
By:______________________________________
Its:_____________________________________
EXHIBIT A
AUXILIARY MARKS
Auto Express
Electric Ave.
Electric Ave. & More
Gold N' Gems
Home Ideas
Kids Store
Lechmere
Montgomery Ward Direct
Romantic Moods
Rooms & More
EXHIBIT E
[Date]
ValueVision International, Inc.
6740 Shady Oak Road
Minneapolis, Minnesota 55344
Attention:
RE: CREDIT CARD LICENSE & RECEIVABLES SALE AGREEMENT
BETWEEN MONTGOMERY WARD & CO., INCORPORATED
("MONTGOMERY WARD") AND VALUEVISION INTERNATIONAL, INC.
("VALUEVISION") DATED MARCH 13, 1995 ("CREDIT CARD
AGREEMENT")
Dear ___________________________:
Effective April 1, 1996, Montgomery Ward entered into an interim
Consumer Credit Card Program Agreement ("Interim Agreement") with Monogram
Credit Card Bank of Georgia ("Monogram"), which, like Montgomery Ward Credit
Corporation ("MWCC"), is a wholly owned subsidiary of General Electric Capital
Corporation. Pursuant to the Interim Agreement, Monogram is issuing the "Card"
and administrating the "Revolving Charge Plan" as contemplated by the Credit
Card Agreement. The new arrangements with Monogram differ from the prior Account
Purchase Agreement between Montgomery Ward and MWCC dated June 24, 1988, as
amended ("Account Purchase Agreement") in that the receivables are created
directly between the customer and Monogram rather than being sold by the
retailer as is generally the case under the Account Purchase Agreement. The
Interim Agreement is to be replaced by various definitive agreements to be
entered into among Montgomery Ward, Monogram, MWCC and their affiliates
("Definitive Agreements").
In connection with the Definitive Agreements, the acquisition by
ValueVision of the assets of Montgomery Ward Direct, L.P. ("Montgomery Ward
Direct"), and the restructuring of various arrangements between ValueVision and
Montgomery Ward (such new arrangements between Montgomery Ward and ValueVision,
including those relating to Montgomery Ward Direct, herein referred to as
"ValueVision Agreements"), the parties to this letter agreement hereby agree to
make such modifications to the Credit Card Agreement as are required or
reasonably desired to reflect, comply with, and be consistent with the terms of
the ValueVision Agreements and Definitive Agreements, and to permit Montgomery
Ward and its affiliates to comply with their obligations in connection with the
Definitive Agreements. Such modifications to the Credit Card Agreement will
include, but will not be limited to, the following:
10. References to the "Account Purchase Agreement" shall be
changed to references to the Definitive Agreements.
11. References to the "Operating Agreement," "Service Mark License
Agreement," and "Permitted Business" shall be changed to refer
to such agreements as they will be modified as part of the
ValueVision Agreements, and to reflect the permitted
businesses under the ValueVision Agreements as to which
ValueVision will be permitted to use the Montgomery Ward
"Card."
12. The defined term "Specified Percentage" will be modified by
deleting the reference to 3% and substituting a reference to
1 1/2%.
13. The fees payable to ValueVision for approved credit card
applications obtained by it through its television programming
will also apply to approved applications obtained by
ValueVision through the Montgomery Ward Direct catalog
business conducted by ValueVision.
14. Modifications will be made that are needed to reflect the fact
that under the Definitive Agreements receivables will be
created directly between the customer and Monogram rather than
being sold by the retailer as is the case under the Account
Purchase Agreement.
Please indicate your agreement to the foregoing by executing and
returning to the undersigned a copy of this letter.
Very truly yours,
MONTGOMERY WARD & CO., INCORPORATED
By:____________________________________
Its:___________________________________
Accepted and Agreed to:
VALUEVISION INTERNATIONAL, INC.
By:___________________________________
Its:__________________________________
EXHIBIT F
AMENDED AND RESTATED WARRANT AGREEMENT
Warrant Agreement dated as of this 27th day of July, 1996, by and among
ValueVision International, Inc., a Minnesota corporation (the "Company"),
Montgomery Ward & Co., Incorporated, an Illinois corporation ("MW") and
Montgomery Ward Direct, L.P., a Delaware limited partnership ("MWD").
R E C I T A L S
A. Pursuant to a Securities Purchase Agreement dated as of March 13,
1995 by and between the Company and MW, the Company agreed to issue and sell,
and MW agreed to purchase, Existing Warrants (as herein defined) to purchase an
aggregate of 25,000,000 shares of the Common Stock of the Company, subject to
adjustment, under the terms and subject to the conditions set forth therein. The
Existing Warrants are governed by the terms of a certain Warrant Agreement,
dated August 8, 1995, between MW and VVI (the "Original Warrant Agreement").
B. Existing Warrants of Series A and Series B, both inclusive (the
"Series A-B Warrants"), have vested, and Existing Warrants of Series C through
Series O, all inclusive (the "Series C-O Warrants"), have not vested.
D. Pursuant to a certain Restructuring Agreement, dated as of even date
herewith, between the Company and MW (the "Restructuring Agreement"), the
Company and MW have agreed to exchange the Series C-O Warrants, to amend and
restate that certain Operating Agreement and that certain Servicemark License
Agreement, and to amend that certain Credit Card Receivables Sale and Purchase
Agreement, all dated as of March 13, 1995, and to amend and restate that certain
Registration Rights Agreement, dated August 8, 1995 and this Agreement, all in
consideration of the issuance by VVI of new Series P Warrants to purchase an
aggregate of 1,484,462 shares of Common Stock (the "Exchange Warrants").
E. MWD is a wholly owned subsidiary of MW. Pursuant to an Asset
Purchase Agreement, dated as of July 27, 1996, between the Company's subsidiary,
ValueVision Direct Marketing Company, Inc., and MWD (the "Asset Purchase
Agreement"), ValueVision Direct Marketing Company, Inc. has agreed to deliver to
MWD, as consideration for the sale of all of MWD's assets, Series P warrants to
purchase an aggregate of 1,484,993 shares of Common Stock (the "MWD Warrants").
F. MW, MWD and VVI desire to amend and restate the Original Warrant
Agreement to set forth the terms under which the New Warrants will be issued and
the Series A-B Warrants shall be exercised.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the premises set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company, MW and MWD agree that the Original Warrant
Agreement shall be amended and restated to read as follows:
15. Definition of Terms. As used in this Warrant Agreement, the following
capitalized terms shall have the following respective meanings:
(a) Asset Purchase Agreement: "Asset Purchase Agreement" has
the meaning assigned thereto in the Recitals.
(b) Business Day: A day other than a Saturday, Sunday or other
day on which banks in the State of Minnesota are authorized by law to
remain closed.
(c) Common Stock: Common stock, $.01 par value per share, of
the Company.
(d) Common Stock Equivalents: Securities that are convertible
into or exercisable for Common Stock.
(e) Company: "Company" has the meaning assigned thereto in the
Preamble.
(f) Conversion Ratio: The number of Warrant Shares of Common
Stock issuable upon the exercise of a Warrant, which shall initially be
1, subject to adjustment from time to time pursuant to Section 6.1.
(g) Exchange Act: The Securities Exchange Act of 1934, as
amended.
(h) Exchange Warrants: "Exchange Warrants" has the meaning
assigned thereto in Recital D.
(i) Exercise Price Per Share: The "Exercise Price Per
Share" shall mean:
(i) in the case of New Warrants, the
exercise price payable for each Warrant Share upon
exercise of a New Warrant, which shall initially be
set at $.01 per share, subject to adjustment from
time to time pursuant to Section 6.1; and
(ii) in the case of Series A-B Warrants, the
exercise price payable for each Warrant Share upon
exercise of a Series A or Series B Warrant set forth
on the Vesting Schedule to the Original Warrant
Agreement, subject to adjustment from time to time
pursuant to Section 6.1.
(j) Existing Warrants: Warrants issued pursuant to the
Securities Purchase Agreement.
(k) Expiration Date: August 8, 2003, or if such day is not a
Business Day, the next succeeding day which is a Business Day.
(l) HSR Act: "HSR Act" has the meaning assigned thereto in
Section 5.9.
(m) Market Price: The Market Price per share of Common Stock
at any date shall be deemed to be the average of the daily closing
prices for the 20 consecutive trading days ending on such date. The
closing price for each day shall be the last sale price of the Common
Stock, or in case no such reported sales take place on such day, the
average of the last reported bid and asked prices of the Common Stock,
in either case on the principal national securities exchange on which
the Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on any such exchange, as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price of the
Common Stock as determined in good faith by the Board of Directors.
(n) MPLP: "MPLP" has the meaning assigned thereto in Section
13.
(o) MW: "MW" has the meaning assigned thereto in the Preamble.
(p) MWD: "MWD" has the meaning assigned thereto in the
Preamble.
(q) MWD Warrants: "MWD Warrants has the meaning assigned
thereto in Recital E.
(r)
(s) MW Group: "MW Group" has the meaning assigned thereto in
that certain Amended and Restated Operating Agreement by and between MW
and the Company of even date herewith.
(t) NASD: National Association of Securities Dealers, Inc. and
NASDAQ: NASD Automatic Quotation System.
(u) New Warrants: Warrants in the form attached hereto as
Exhibit A to be issued on the date hereof pursuant to the Restructuring
Agreement and the Asset Purchase Agreement, and all other warrants that
may be issued in their place (together evidencing the right to purchase
an aggregate of 2,969,455 shares of Common Stock), subject to
adjustment pursuant to Section 6 hereof. The New Warrants include the
Exchange Warrants and the MWD Warrants.
(v) Original Warrant Agreement: That certain Warrant
Agreement, dated August 8, 1995, between the Company and MW.
(w) Restructuring Agreement: "Restructuring Agreement" has the
meaning assigned thereto in the Recitals.
(x) Series A-B Warrants: "Series A-B Warrants" has the meaning
assigned thereto in the Recitals.
(y) Series C-O Warrants: "Series C-O Warrants" has the meaning
assigned thereto in the Recitals.
(z) SEC: The Securities and Exchange Commission.
(aa) Securities Purchase Agreement: "Securities Purchase
Agreement" has the meaning assigned thereto in the Recitals.
(bb) Term: "Term" has the meaning assigned thereto in Section
15.
(cc) Warrants: New Warrants and Series A-B Warrants.
(dd) Warrant Shares: "Warrant Shares" has the meaning assigned
thereto in Section 2.
16. Warrant Shares. Each New Warrant and each Series A-B Warrant will
initially be exercisable for one share of Common Stock (a "Warrant Share"),
subject to adjustment pursuant to Section 6 hereof.
17. Vesting. All Series A-B Warrants are fully vested. All New Warrants
shall be fully vested when issued.
18. Expiration of Warrants. All Warrants shall expire at 5:00 pm
Minneapolis, Minnesota time, on the Expiration Date. All Warrants that are not
exercised on or prior to the Expiration Date shall become void on the Expiration
Date, and all rights hereunder and under such Warrants shall thereupon cease.
19. Exercise of Warrants.
19.1 Exercise Period. Any or all Warrants may be exercised by the
holder thereof at any time and from time to time after 9:00 am, Minneapolis,
Minnesota time, on the date hereof, and before 5:00 pm, Minneapolis, Minnesota
time, on the Expiration Date.
19.2 Exercise Procedure. The Warrant holder may exercise Warrants
during any time that such Warrants are exercisable in whole or in part, by
presentation and surrender of the Warrant Certificate to the Company at its
principal executive offices, with the Subscription Form annexed thereto duly
executed and accompanied by payment of the full Exercise Price Per Share for
each Warrant Share to be purchased in immediately available funds by wire
transfer to a bank designated by the Company from time to time.
19.3 Issuance of Warrant Shares. Subject to Section 5.9, upon receipt
of the Warrant Certificate with Subscription Form duly executed and accompanied
by payment of the aggregate Exercise Price Per Share for the Warrant Shares for
which the Warrant is then being exercised, and provided that the holder has made
any government filings, and has obtained any governmental actions, consents,
approvals, or waiver, required on the holder's part in order to exercise the
Warrants, the Company shall cause to be issued certificates for the total number
of whole shares of Common Stock for which the Warrant is being exercised
(adjusted to reflect the effect of the provisions contained in Section 6 hereof,
if any), in such denominations as are requested for delivery to the holder, and
the Company shall thereupon deliver such certificates to the holder. The holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the holder. If at the
time a Warrant is exercised, a Registration Statement is not in effect to
register under the Securities Act the Warrant Shares issuable upon exercise of
such Warrant, the Company may require the holder to make such representations,
and may place such legends on certificates representing the Warrant Shares, as
are customary and may be reasonably required in the opinion of counsel to the
Company to permit the Warrant Shares to be issued without such registration.
19.4 Residual Warrants. In case the Warrant holder shall exercise a
Warrant with respect to less than all of the Warrant Shares that may be
purchased under such Warrant, the Company shall execute a Warrant in the form of
such Warrant for the balance of such Warrant Shares and deliver such Warrant to
the holder.
19.5 Transfer Taxes. The Company shall pay any and all stock transfer
and similar taxes which may be payable in respect of the issue of the Warrant or
in respect of the issue of any Warrant Shares.
19.6 Reservation of Shares. The Company hereby agrees that at all times
while any Warrants are outstanding there shall be reserved for issuance and
delivery upon exercise of the Warrants such number of shares of Common Stock or
other shares of capital stock of the Company from time to time issuable upon
exercise of the Warrants. All such shares shall be duly authorized, and when
issued upon such exercise, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale and free and clear of all preemptive
rights.
19.7 Fractional Shares. The Company shall not be required to issue any
fraction of a share of its capital stock in connection with the exercise of a
Warrant. The holder of Warrants will be required to exercise such number of
Warrants so that a whole number of shares of Common Stock will be issued, or, at
the Company's sole option, the Company may (i) pay such holder an amount in cash
equal to such fraction of a share multiplied by the Market Price of one share of
Common Stock on the exercise date, or (ii) may issue the larger number of whole
shares purchasable upon exercise of the Warrant, and may require such holder to
pay an additional amount equal to the exercise price multiplied by the balance
of the share.
19.8 Listing. Prior to the issuance of shares of Common Stock upon
exercise of a Warrant, the Company shall use its reasonable best efforts to
secure the listing of such shares of Common Stock upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance upon exercise of
the Warrant) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of the Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, and shall maintain
such listing of, any other shares of capital stock of the Company issuable upon
the exercise of the Warrant if and so long as any shares of the same class shall
be listed on such national securities exchange or automated quotation system.
19.9 Approvals of Regulatory Authorities. In the event any filings with
or approvals by any federal or state regulatory agency would be required by
virtue of the exercise of any of the Warrants (including, without limitation,
the U.S. Departments of Justice and Commerce under the Hart-Scott-Rodino
Antitrust Improvements Act ("HSR Act") or the Federal Communications Commission
under the Federal Communications Act), such exercise of such Warrant shall be
conditional upon (x) expiration or termination of the waiting period under the
HSR Act, and (y) receipt of any other required regulatory approvals, but shall
otherwise be unconditional. If this Section 5.9 is applicable, (x) the parties
will cooperate with each other and make such respective filings and take such
other respective actions as may be necessary or desirable in order that the
exercise of any such Warrant shall be in accordance with applicable laws, and
(y) the Term of this agreement shall be extended, if required, during the period
in which applications for regulatory approvals are pending before regulatory
authorities.
20. Exercise Price Per Share and Conversion Ratio Adjustments. The
Exercise Price Per Share and the Conversion Ratio, and the kind of Warrant
Shares shall be subject to adjustment from time to time upon the occurrence of
certain events and at the times as provided for in this Section 6.
20.1 Mechanical Adjustments. If at any time prior to the exercise of
any Warrant, the Company shall (i) declare a dividend or make a distribution on
the Common Stock payable in shares of its capital stock (whether shares of
Common Stock or of capital stock of any other class); (ii) subdivide, reclassify
or recapitalize outstanding Common Stock into a greater number of shares; (iii)
combine, reclassify or recapitalize its outstanding Common Stock into a smaller
number of shares, or (iv) issue any shares of its capital stock by
reclassification of its Common Stock (including any such reclassification in
connection with a consolidation or a merger in which the Company is the
continuing corporation), excluding, however, any dividend, distribution,
reclassification or recapitalization that requires the payment of more than
nominal additional consideration by security holders, the Conversion Ratio in
effect at the time of the record date of such dividend, distribution,
subdivision, combination, reclassification or recapitalization shall be
immediately adjusted so that upon exercise of a Warrant the holder thereof shall
be entitled to receive the aggregate number and kind of shares which, if the
Warrants had been exercised in full immediately prior to such event, the holder
thereof would have owned upon such exercise and been entitled to receive by
virtue of such dividend, distribution, subdivision, combination,
reclassification or recapitalization, for the same aggregate consideration. The
Exercise Price Per Share payable upon exercise of each Warrant shall
simultaneously be adjusted by multiplying the initial Exercise Price Per Share
in effect for such Warrant by the Conversion Ratio in effect immediately prior
to such adjustment and dividing the products so obtained by the Conversion
Ratio, as adjusted. Any adjustments required by this Section 6.1 shall be made
successively immediately after the record date, in the case of a dividend or
distribution, or the effective date, in the case of a subdivision, combination,
reclassification or recapitalization, to allow the purchase of such aggregate
number and kind of shares, subject to Section 6.4.
20.2 Subsequent Adjustments. In the event that at any time, as a result
of any adjustment made pursuant to Section 6, the holder of a Warrant thereafter
shall become entitled to receive any shares of the Company other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section 6, subject to Section 6.6.
20.3 No Adjustment for Cash Dividends. No adjustment in respect of any
cash dividends not constituting Special Dividends shall be made during the term
of the Warrants or upon the exercise of any Warrant.
6.4 Notice of Adjustment. No adjustment in the Conversion Ratio shall
be required unless such adjustment would increase or decrease the Conversion
Ratio by at least .001; provided, however, that any adjustments which by reason
of this Section 6.6 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest one-hundredth of a share or the nearest
tenth of a cent, as the case may be. The adjusted Conversion Ratio may be
rounded off to the nearest one millionth (six places to the right of the decimal
point). Whenever the Conversion Ratio or the Exercise Price Per Share is
adjusted as herein provided, the Company shall prepare and deliver forthwith to
all holders of Warrants a certificate signed by its Chief Financial Officer,
setting forth the adjusted Conversion Ratio, the adjusted number of shares
purchasable upon the exercise of Warrants and the Exercise Price Per Share of
such shares after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made. The failure to give such notice or any defect therein shall
not affect the validity or effectiveness of any such adjustment.
6.5 Form of Warrant After Adjustments. The form of Warrants need not be
changed because of any adjustments in the Exercise Price Per Share or the number
or kind of the Warrant Shares, and Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in an adjusted Warrant, as initially issued.
21. No Rights as Shareholders; Notice to Holders. Nothing contained in
this Agreement or in the Warrants shall be construed as conferring upon a holder
of Warrants by virtue of its status as a Warrant holder the right to vote or to
receive dividends or to consent or to receive notice as a shareholder in respect
of any meeting of shareholders for the election of directors of the Company or
of any other matter, or any rights whatsoever as shareholders of the Company.
The Company shall give notice to all holders of Warrants if at any time prior to
the expiration or exercise in full of the Warrants, any of the following events
shall occur:
(a) the Company shall authorize the payment of any dividend
payable in any securities upon shares of Common Stock or authorize the
making of any distribution (other than a regular cash dividend or
distribution paid out of net profits legally available therefor) to all
holders of Common Stock;
(b) the Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or Common Stock
Equivalents or of rights, options or warrants to subscribe for or
purchase Common Stock or Common Stock Equivalents or of any other
subscription rights, options or warrants;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, or sale or
conveyance of the property of the Company as an entirety or
substantially as an entirety); or
(d) a capital reorganization or reclassification of the Common
Stock (other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification
or change of Common Stock outstanding) or in the case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety.
Such giving of notice shall be initiated (i) at least 5 Business Days prior to
the date fixed as a record date or effective date or (ii) the date of closing of
the Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the stock transfer
books, as the case may be. Failure to provide such notice shall not affect the
validity of any action taken in connection with such dividend, distribution or
subscription rights, or proposed merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up.
22. Lost, Stolen, Mutilated or Destroyed Warrants. If a Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as, and in substitution for the Warrant.
23. Restrictions on Transfer of Warrants and Warrant Shares. The
Warrants and the Warrant Shares may not be transferred, disposed of or
encumbered (any such action, a "Transfer"), except in accordance with and
subject to the provisions of the Securities Act and the rules and regulations
promulgated thereunder. If at the time of a Transfer, a Registration Statement
is not in effect to register the Warrant Shares, the Company may require the
holder thereof to make such representations, and to provide the Company with an
opinion of counsel reasonably acceptable to the Company that such Transfer would
not result in violation of any federal or state law regarding the offering or
sale of securities and the Company may place such legends on certificates
representing the Warrant Shares, as are customary and may be reasonably required
in the opinion of counsel to the Company to permit a Transfer without such
registration. Subject to the foregoing and to Section 13, all Warrants and
Warrant Shares shall be freely transferable.
24. Warrant Register. All Warrants shall be in registered form. The
Company shall maintain a register of the Warrants (the "Warrant Register"). All
Transfers of Warrants shall be recorded in the Warrant Register.
25. Registration Under the Securities Act of 1933. The Warrant Shares
shall be entitled to certain registration rights provided in that Registration
Rights Agreement by and among the Company, MW and MWD of even date herewith.
26. Certain Filings. The parties will cooperate with each other in
determining whether action by or in respect of, or filing with, any governmental
body, agency or official, or authority is required, or any actions, consents,
approvals or waivers are required to be obtained in connection with the
transactions and adjustments contemplated by this Agreement, and provide each
other with reasonable assistance in seeking any such actions, consents,
approvals, or waivers or making any such filings, furnishing information
required in connection therewith, and seeking timely to obtain any such actions,
consents, approvals or waivers.
27. Right of First Offer. No holder of a Warrant or Common Stock
(including Warrant Shares) will transfer, sell, or in any manner convey any
interest in any Warrants or Common Stock (including Warrant Shares), except
through an offering to the public that is registered under the Securities Act,
or pursuant to the provisions of Rule 144 under the Securities Act (excluding
paragraph (k) of Rule 144), unless such holder first offers such Warrants or
Common Stock (including Warrant Shares) to the Company. The holder shall provide
the Company with a written offer specifying the amount of securities being
offered, the purchase price and other terms of such offer. The Company shall
have fifteen (15) days from and after the date of receipt by the Company of such
written offer within which to accept such offer, or to make a written
counteroffer with respect to all or any part of the securities offered. If the
Company does not accept the holder's offer, or the holder does not accept the
Company's counteroffer, by written notice given within such 15-day period, the
holder may offer and sell such securities to any party within 180 days
thereafter on terms that are not less favorable to the holder than the terms of
the later to be made of the holder's last offer to the Company or the Company's
last counteroffer to the holder, if any, provided that the terms of a sale to a
third party shall not be deemed to be less favorable to the holder solely based
on a lower purchase price paid by the third party if such lower purchase price
is at least 90% of the highest price offered by or to the Company. This Section
13 shall not apply to any transfer of Warrants or Common Stock (including
Warrant Shares) (i) by any member of the MW Group to any other member of the MW
Group, (ii) by MW to Merchant Partners, Limited Partnership, a Delaware limited
partnership ("MPLP"), or (iii) by MPLP to its partners, and the partners or
stockholders (direct or remote) of such partners.
28. Term. Subject to Section 5.9, the term of this Agreement shall
begin on the date hereof and expire on August 8, 2003 (the "Term").
29. Additional Actions and Documents. Each of the parties hereto agrees
to take or cause to be taken such further actions, to execute, acknowledge,
deliver and file or cause to be executed, acknowledged, delivered and filed such
further documents and instruments, and to use all reasonable efforts to obtain
such consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement.
16. Cancellation and Return of Series C-O Warrants. Effective as at the
date hereof, the Series C-O Warrants issued pursuant to the Original Warrant
Agreement are deemed to have expired unexercised and are hereby terminated. All
Series C-O Warrants shall be surrendered to the Company within 30 days of the
date hereof.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by
the Company under its corporate seal as of the date first above written.
VALUEVISION INTERNATIONAL, INC.
By: /s/ Robert L. Johander
---------------------------------
Robert L. Johander
Its Chief Executive Officer
Attest:______________________________
Secretary
MONTGOMERY WARD & CO., INCORPORATED
By:________________________________
______ President
Attest:_______________________
Secretary
MONTGOMERY WARD DIRECT, L.P.
By: MW Direct General, Inc., the
general partner
By:________________________________
Its:_______________________________
Attest:_______________________
Secretary
EXHIBIT G
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Amended and Restated Registration Rights Agreement dated as of July 27,
1996, by and among ValueVision International, Inc., a Minnesota corporation (the
"Company"), Montgomery Ward Direct, L.P., a Delaware limited partnership
("MWD"), and Montgomery Ward & Co., Incorporated, an Illinois corporation
("MW").
R E C I T A L S
A. Pursuant to a Securities Purchase Agreement, dated as of March 13,
1995, by and between the Company and MW (the "Securities Purchase Agreement"),
the Company agreed to issue and sell, and MW agreed to purchase, 1,280,000
shares (the "Shares") of Common Stock of the Company, under the terms and
subject to the conditions set forth therein.
B. Pursuant to the Securities Purchase Agreement, the Company also
agreed to issue and sell, and MW agreed to purchase, Existing Warrants (as
herein defined) to purchase an aggregate of 25,000,000 shares of the Common
Stock of the Company, subject to adjustment, under the terms and subject to the
conditions set forth therein. Existing Warrants of Series A and Series B, both
inclusive (the "Series A-B Warrants"), have vested, and Existing Warrants of
Series C through Series O, all inclusive (the "Series C-O Warrants") have not
vested.
C. Pursuant to the Securities Purchase Agreement, the Company agreed to
grant MW certain registration rights with respect to the Shares and the shares
issued upon exercise of the Existing Warrants and executed that certain
Registration Rights Agreement, dated as of August 8, 1995 (the "Original
Registration Rights Agreement").
D. Pursuant to a certain Restructuring Agreement, dated as of even date
herewith, between the Company and MW (the "Restructuring Agreement"), the
Company and MW have agreed to exchange the Series C-O Warrants, to amend and
restate that certain Operating Agreement and that certain Servicemark License
Agreement, and to amend that certain Credit Card Receivables Sale and Purchase
Agreement, all dated as of March 13, 1995, and to amend and restate that certain
Warrant Agreement, dated August 8, 1995 and this Agreement, all in consideration
of the issuance by VVI of new Series P Warrants ("New Warrants") to purchase an
aggregate of 1,484,462 shares of Common Stock.
E. MWD is a wholly owned subsidiary of MW. Pursuant to an Asset
Purchase Agreement, dated as of August 1, 1996, between the Company's
subsidiary, ValueVision Direct Marketing Company, Inc., and MWD (the "Asset
Purchase Agreement"), ValueVision Direct Marketing Company, Inc. has agreed to
deliver to MWD, as consideration for the sale of all of MWD's assets, New
Warrants to purchase an aggregate of 1,484,993 shares of Common Stock.
F. In connection with the cancellation of the Series C-O Warrants and
the issuance of the New Warrants, the parties desire to amend and restate the
Original Registration Rights Agreement as set forth herein.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the premises set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company, MWD and MW agree that the Original
Registration Rights Agreement is amended and restated in its entirety to read as
follows:
30. Definition of Terms. As used in this Registration Rights
Agreement, the following capitalized terms shall have the
following respective meanings:
(a) Asset Purchase Agreement: See Recital E.
(b) Business Day: A day other than a Saturday, Sunday or other
day on which banks in the State of Minnesota are authorized by law to
remain closed.
(c) Closing Date: August 8, 1995.
(d) Common Stock: Common Stock, $.01 par value per share, of
the Company.
(e) Company: See the Preamble.
(f) Demand Notice: See Section 3(a).
(g) Demand Registration: See Section 3(a).
(h) Demand Registration Rights: See Section 3(a).
(i) Exchange Act: The Securities Exchange Act of 1934, as
amended.
(j) Exercise Price: The exercise price of a New Warrant or a
Series A-B Warrant as indicated in, and as may be adjusted by, the
Warrant Agreement.
(k) Expiration Date: 5:00 P.M., Minneapolis, Minnesota time,
on August 7, 2003, or if such day is not a Business Day, the next
succeeding day which is a Business Day.
(l) Existing Warrants: Warrants issued pursuant to the
Securities Purchase Agreement.
(m) Inspectors: See Section 5(g).
(n) MW: See the Preamble.
(o) MWD: See the Preamble.
(p) NASD: National Association of Securities Dealers, Inc. and
NASDAQ: NASD Automated Quotation System.
(q) New Warrants: Series P warrants issued pursuant to the
Restructuring Agreement and the Asset Purchase Agreement.
(r) Outstanding Registration Rights Agreement: The
Representative's Warrant Agreement dated as of November 15, 1993 by and
between the Company and Gerard Klauer Mattison & Co., Inc.
(s) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any
department or agency thereof.
(t) Piggyback Notice: See Section 2(a).
(u) Piggyback Registration: See Section 2(a).
(v) Piggyback Registration Rights: See Section 2(a).
(w) Prospectus: Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all
other amendments and supplements to the Prospectus, including
post-effective amendments and all material incorporated by reference in
such Prospectus.
(x) Public Offering: A public offering of any of the Company's
equity or debt securities pursuant to a registration statement under
the Securities Act.
(y) Records: See Section 5(g).
(z) Registration Expenses: Any and all expenses incurred in
connection with any registration or action incident to performance of
or compliance by the Company with this Agreement, including, without
limitation, (i) all SEC, national securities exchange and NASD
registration and filing fees; all listing fees and all transfer agent
fees; (ii) all fees and expenses of complying with state securities or
blue sky laws; (iii) all printing, mailing, messenger and delivery
expenses and (iv) all fees and disbursements of counsel for the Company
and of its accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such
performance and compliance, but excluding underwriting discounts and
commissions, brokerage fees and transfer taxes, if any, and fees of
counsel or accountants retained by MW.
(aa) Registration Notice: See Section 2(a).
(bb) Registration Period: The period of time from the second
anniversary of the Closing Date to the Expiration Date except as
provided in Sections 3(a), 3(b) and 5.
(cc) Registrable Securities: Any Shares or Warrant Shares
issued to MW or MWD, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock
splits, stock dividends, recapitalizations, reclassifications or the
like, and as adjusted pursuant to the Warrant Agreement.
(dd) Registration Statement: Any registration statement of the
Company filed or to be filed with the SEC which covers any of the
Registrable Securities pursuant to the provisions of this Agreement,
including all amendments (including post-effective amendments) and
supplements thereto, all exhibits thereto and all material incorporated
therein by reference.
(ee) SEC: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the
Exchange Act.
(ff) Securities Act: The Securities Act of 1933, as amended.
(gg) Securities Purchase Agreement: See Recital A.
(hh) Series A-B Warrants: See Recital B.
(ii) Series C-O Warrants: See Recital B.
(jj) Shares: See Recital A.
(kk) Warrant Agreement: That certain Amended and Restated
Warrant Agreement, dated as of July 27, 1996, among the Company, MW and
MWD.
(ll) Warrant Shares: All shares of Common Stock issued or
issuable upon exercise of any or all Series A-B Warrants and New
Warrants.
1. Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time
during the Registration Period, the Company proposes to register any of
its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own
account (other than by a registration statement on Form S-4, S-8 or
other successor form), it shall as expeditiously as possible give
written notice (a "Registration Notice") to the holders of Registrable
Securities of its intention to do so. Upon the written request of any
such holder (a "Piggyback Notice", which notice shall specify the
Registrable Securities intended to be registered) made within 20 days
after receipt of a Registration Notice, the Company shall include in
the Registration Statement the Registrable Securities (a "Piggyback
Registration") which the Company has been so requested by such holder
to register, subject to the limitations provided in the Existing
Registration Rights Agreements. Such holder's rights to register shares
hereunder are referred to hereinafter as "Piggyback Registration
Rights."
(b) Withdrawal of Piggyback Registration by Company. If, at
any time after giving a Registration Notice but prior to the effective
date of the related Registration Statement, the Company shall determine
for any reason not to register such securities, the Company shall give
written notice of such determination to the holders of the Registrable
Securities sought to be registered and, thereupon, shall be relieved of
its obligation to register any Registrable Securities in connection
with such Piggyback Registration. All best efforts obligations of the
Company shall cease if the Company determines to terminate prior to
such effective date any registration where Registrable Securities are
being registered pursuant to this Section 2.
(c) Piggyback Registration of Underwritten Public Offerings.
If a Piggyback Registration involves an offering by or through
underwriters, then, (i) the holders of the Registrable Securities
sought to be registered must agree to sell their Registrable Securities
included in the Company's Registration Statement to the underwriters
selected by the Company on the same terms and conditions as apply to
other selling shareholders and (ii) such holders may elect in writing,
not later than five Business Days prior to the effectiveness of the
Registration Statement filed in connection with such registration, not
to have their Registrable Securities so included in connection with
such registration.
(d) Payment of Registration Expenses for Piggyback
Registration. The Company shall pay all Registration Expenses in
connection with each registration of Registrable Securities requested
pursuant to a Piggyback Registration Right contained in this Section 2.
2. Demand Registration.
(a) Request for Registration. Upon the written request (a
"Demand Notice") of a holder of Registrable Securities at any time
during the Registration Period, and subject to the limitations provided
in the Existing Registration Rights Agreements, the Company shall, as
soon as practicable, use its best efforts to file a Registration
Statement (a "Demand Registration") with respect to all Registrable
Securities that such holder requested be registered in the Demand
Notice. Prior to the filing of such Demand Registration, the Company
shall give written notice to all other holders of Registrable
Securities of the Demand Registration. Upon the written request of any
such holder made within 20 days after receipt of such notice, the
Company shall include in the Demand Registration the Registrable
Securities that such holder requested be registered, subject to the
limitations provided in the Existing Registration Rights Agreements.
The rights of holders of Registrable Securities to register shares
hereunder are referred to hereinafter as "Demand Registration Rights."
The holders of Registrable Securities may in the aggregate exercise up
to two Demand Registration Rights during the Registration Period. The
Company shall use its best efforts to obtain the effectiveness of the
Registration Statement and to take all other action necessary under any
Federal or state law or regulation to permit such Registered Securities
to be sold or otherwise disposed of, and the Company shall maintain
such compliance with each such Federal and state law and regulation for
the period necessary for the holder of Registrable Securities to effect
the proposed sale or other disposition (but in no event for more than
120 days). The Company shall be entitled to have the Demand
Registration prepared, filed and caused to become effective pursuant to
Form S-3 or any successor form promulgated by the SEC ("Form S-3")
pursuant to this Section 3(a), so long as it is eligible to register
its securities pursuant to Form S-3 and Form S-3 is available for the
distribution contemplated by the holder of Registrable Securities.
(b) Deferment of Demand Registration by Company. The Company
shall be entitled to defer a Demand Registration for a period of up to
120 days if and to the extent that its Board of Directors shall
determine in good faith that such registration would interfere with a
pending material corporate transaction which has been approved by the
Board of Directors of the Company. In such event, the Registration
Period shall be extended by the amount of such delay and the related
Demand Registration Right would be deemed not to be exercised.
(c) Payment of Registration Expenses for Demand Registration.
Except as provided below, holders of Registrable Securities sought to
be registered shall pay the first $75,000 or Registration Expenses,
plus 50% of all remaining Registration Expenses of a Demand
Registration and the Company shall pay the balance of such Registration
Expenses; and holders of such Registrable Securities and the Company
shall pay the fees and expenses of each of their respective legal
counsel. A registration will not count as a Demand Registration until
it has become effective, unless the holders demanding such registration
withdraw the Registrable Securities, in which case such demand will
count as a Demand Registration unless the holders of such Registrable
Securities agree to pay all Registration Expenses.
(d) Registration of Additional Securities. Except to the
extent required by the Outstanding Registration Rights Agreements,
neither the Company nor any other party may include in any Registration
Statement filed pursuant to a Demand Registration any additional shares
of Common Stock for registration for sale by the Company or any other
holder of securities. The Company shall not grant any rights
inconsistent with this Section 3(d).
(e) Priority in Demand Registration. If a Demand Registration
involves an offering by or through an underwriter or underwriters, and
the managing underwriter or underwriters of such offering advise the
Company and the holders of Registrable Securities sought to be
registered pursuant to such Demand Registration in writing that in
their opinion the size of the offering which such holders and all other
persons including the Company intend to make is such that the success
of the offering would be materially and adversely affected by the
inclusion of the Registrable Securities requested to be included, then
the amount of securities to be offered for the account of holders of
Registrable Securities shall be reduced pro rata (according to the
Registrable Securities proposed for registration) to the extent
necessary to reduce the total amount of securities to be included in
such offering to the amount recommended by such managing underwriter or
underwriters; provided that if securities are being offered for the
account of other persons or entities as well as the Company, then with
respect to the Registrable Securities intended to be offered by holders
of Registrable Securities, the proportion by which the amount of such
securities is reduced shall not exceed the proportion by which the
amount of such class of securities intended to be offered by such other
persons or entities is reduced, except to the extent such other persons
are entitled to a lesser reduction under the Existing Registration
Rights Agreements.
3. Company Buy-out of Piggyback Registration or Demand Registration. In
lieu of carrying out its obligations to effect a Piggyback Registration or
Demand Registration of any Registrable Securities pursuant to this Agreement,
the Company may carry out such obligation by offering to purchase and purchasing
such Registrable Securities requested to be registered (a) in the case of
outstanding shares of Common Stock, at the last sale price of the Common Stock
on the day immediately prior to the day the request for registration is made and
(b) in the case of shares not yet purchased under the New Warrants or Series A-B
Warrants at an amount in cash equal to the difference between (i) the last sale
price of the Common Stock on the day immediately prior to the day the request
for registration is made and (b) the Exercise Price in effect on such day.
4. Registration Procedures. Whenever a holder of Registrable Securities
has requested that any Registrable Securities be registered pursuant to either
Section 2 or 3 hereof, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable, and in
connection with any such request, the Company will as expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed registration
statement to become effective; provided that before filing a
Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to one counsel selected by such
holder copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel, and that after
the filing of the registration statement, the Company will promptly
notify all holders of Registrable Securities of any stop order issued
or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for a period of not less than 120 days or such
shorter period which will terminate when all Registrable Securities
covered by such Registration Statement have been sold (but not before
the expiration of the requirement of underwriters and dealers to
deliver Prospectuses in connection with such distribution) and comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of
disposition by the selling holders thereof set forth in such
Registration Statement;
(c) furnish to each selling holder of Registrable Securities
and to each underwriter, prior to filing the Registration Statement or
Prospectus or any amendment or supplement thereto, if requested, copies
of such Registration Statement as proposed to be filed, and thereafter
furnish to each selling holder of Registrable Securities and such
underwriter such number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all exhibits
thereto), the Prospectus included in such Registration Statement
(including each Preliminary Prospectus) and such other documents as
each selling holder of Registrable Securities or underwriter may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by each selling holder of Registrable
Securities;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as any selling holder of Registrable Securities or
any managing underwriter reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to
enable any selling holder of Registrable Securities or such managing
underwriter to consummate the disposition in such jurisdictions of the
Registrable Securities owned by any selling holder of Registrable
Securities; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this clause, (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause the Registrable Securities
covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company or
its subsidiaries to enable any selling holder of Registrable Securities
and any managing underwriters to consummate the disposition of such
Registrable Securities;
(f) immediately notify each selling holder of Registrable
Securities, at any time when a Prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event
as a result of which the Prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under
which they were made, not misleading, and the Company will promptly
prepare a supplement or amendment to such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(g) make available for inspection by each selling holder of
Registrable Securities, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any selling holder of Registrable
Securities or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibilities, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement. Records which
the Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary in
the opinion of the underwriter's counsel, if any, or counsel to selling
holders of Registrable Securities to avoid or correct a material
misstatement or omission in the Registration Statement, or (ii) the
release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or governmental agency, or
(iii) the information in such Records has been made generally available
to the public. Each selling holder of Registrable Securities agrees
that it will, upon learning that disclosure of such Records is sought
in a court of competent jurisdiction or by a governmental agency, give
notice to the Company and allow the Company, at the Company's expense,
to undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(h) for purposes of a Demand Registration only, furnish to
each selling holder of Registrable Securities and to each underwriter,
if any, (x) an opinion or opinions of counsel to the Company and (y) a
comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the
type customarily covered by opinions or by comfort letters, as the case
may be, as any selling holder of Registrable Securities or the managing
underwriter reasonably requests;
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally
available to its security holders, as soon as reasonably practicable,
an earnings statement covering a period of twelve months, beginning
within three months after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Act and Rule 158 thereunder;
(j) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(k) cooperate with the selling holders of Registrable
Securities, the underwriter or underwriters (or broker/dealer involved
in the distribution), if any, and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
If any Demand Registration is requested to be in the form of an
underwritten offering, the selection of the managing underwriter shall be
subject to the Company's consent, which consent shall not be unreasonably
withheld. If requested by the underwriters for any underwritten offering, the
Company shall enter into an underwriting agreement in customary form with such
underwriters for such offering, but subject to the Company's reasonable
approval. The selling holders of the Registrable Securities shall be a party to
such underwriting agreement. All fees and expenses (other than Registration
Expenses otherwise required to be paid) of any managing underwriter, any
co-manager or any independent underwriter shall be paid for by such underwriters
or by such selling holders.
The Company may require the selling holders of Registrable Securities
to furnish to the Company such information regarding the distribution of such
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required or reasonably requested in
connection with such registration.
Each selling holder of Registrable Securities agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 5(f) hereof, such selling holder will forthwith discontinue
disposition of such Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(f) hereof, and, if so directed by the Company, such holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the Company shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement (including the period referred to in Section 5(b) hereof) by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 5(f) hereof to and including the date when each
seller of Registrable Securities covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 5(f) hereof.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
5. Indemnification.
(a) Indemnification by Company. In connection with each
Registration Statement relating to disposition of Registrable
Securities, the Company shall indemnify and hold harmless each selling
holder of Registrable Securities and each underwriter of Registrable
Securities and each Person, if any, who controls any selling holder of
Registrable Securities or underwriter (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) against any
and all losses, claims, damages and liabilities, joint or several
(including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any
action, suit or proceeding or any claim asserted), to which they, or
any of them, may become subject under the Securities Act, the Exchange
Act or other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
Prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall not inure to the benefit
of any selling holder of Registrable Securities or underwriter (or any
Person controlling any selling holder of Registrable Securities or
underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) on account of any losses, claims,
damages or liabilities arising from the sale of the Registrable
Securities if such untrue statement or omission or alleged untrue
statement or omission was made in such Registration Statement,
Prospectus or preliminary prospectus, or such amendment or supplement,
in reliance upon and in conformity with information furnished in
writing to the Company by such selling holder of Registrable Securities
or underwriter specifically for use therein. The Company shall also
indemnify selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons
(within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) to the same extent as provided above with respect
to the indemnification of the Holders of Registrable Securities, if
requested. The indemnification obligation imposed on the Company under
this Section 6(a) shall be in addition to any liability which the
Company may otherwise have.
(b) Indemnification by Holder of Registrable Securities. In
connection with each Registration Statement, each selling holder of
Registrable Securities shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6(a), the Company,
its directors and each officer who signs the Registration Statement and
each Person who controls the Company (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act) but only
insofar as such losses, claims, damages and liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in the Registration Statement, the
Prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, in reliance upon and in conformity with information
furnished in writing by such selling holder of Registrable Securities
to the Company specifically for use therein. In no event shall the
liability of any selling holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the net proceeds received
by any selling holder of Registrable Securities from the sale of the
Registrable Securities giving rise to such indemnification obligation.
The Company shall be entitled to receive indemnities from underwriters
participating in the distribution, in the underwriting agreement
pursuant to which such sales are made, with respect to information so
furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary prospectus or any
amendment thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that
proposes to assert the right to be indemnified hereunder will, promptly
after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim is to be made
against an indemnifying party or parties under this Section, notify
each such indemnifying party of the commencement of such action, suit
or proceeding, enclosing a copy of all papers served. No
indemnification provided for in this Section shall be available to any
party who shall fail to give notice as provided in this Section 6 if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure
to give such notice but the omission so to notify such indemnifying
party of any such action, suit or proceeding shall not relieve it from
any liability that it may have to any indemnified party for
contribution or otherwise than under this Section. In case any such
action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in,
and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and the approval by the indemnifying
party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred
by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded
that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such
action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the
fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without
its written consent, but if settled with its written consent, or if
there is a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party shall indemnify and hold harmless
such indemnified parties from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this
Section 6 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities
or expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 6(c), any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant
to this Section 6(d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 6(d). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(e) Priority of Indemnification. If indemnification is
available under this Section 6, the indemnifying parties shall
indemnify each indemnified party to the full extent provided in
subparagraphs (a) and (b) of this paragraph without regard to the
relative fault of said indemnifying party or indemnified party or any
other equitable consideration provided for in this Section 6.
6. Assignment. The Piggyback Rights, Demand Registration Rights and any
other rights of MW and MWD pursuant to this Agreement shall run in favor of any
subsequent holder of Registrable Securities.
7. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail,
(i) if to MW, addressed to:
MONTGOMERY WARD & CO, INCORPORATED
Montgomery Ward Plaza
619 West Chicago Avenue
Chicago, IL 60671
Attention: General Counsel
(ii) if to MWD, addressed to:
MONTGOMERY WARD DIRECT, L.P.
Interchange Tower, Suite 300
600 South Highway 169
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
in case of either (i) or (ii), with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: David W. Schoenberg
Telecopier: (312) 715-4800
(iii) if to the Company, addressed to:
VALUEVISION INTERNATIONAL, INC.
6740 Shady Oak Road
Minneapolis, MN 55344-3433
Attention: Chief Executive Officer
with a copy to:
Maslon, Edelman, Borman & Brand, a
professional limited liability
partnership
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
Attention: William M. Mower
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
8. Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute part of this Agreement.
9. Choice of Law. It is the intention of the parties that the laws of
Minnesota shall govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties.
10. Counterparts. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future law, such provision
shall be fully severable, and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
of this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or its severance from this Agreement.
12. IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the date first above written.
VALUEVISION INTERNATIONAL, INC.
By: /s/ Robert L. Johander
----------------------------------
Robert L. Johander
Its Chief Executive Officer
MONTGOMERY WARD & CO., INCORPORATED
By:____________________________________
_____ President
MONTGOMERY WARD DIRECT, L.P.
By: MW Direct General, Inc., the
general partner
By:_______________________________
Its:______________________________
EXHIBIT H
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of this 27th day of July, 1996 between
Montgomery Ward & Co., Incorporated, an Illinois corporation ("Pledgor") and
ValueVision International, Inc., a Minnesota corporation ("Secured Party").
R E C I T A L S:
13. Pursuant to paragraph 10(b) of an Amended and Restated Operating
Agreement of even date herewith (the "Restated Operating Agreement"), Pledgor
agreed to an "Advertising Commitment" to place $20,000,000 of advertising
through VVI.
B. As collateral security for the performance of the "Advertising
Commitment", VVI desires to receive a pledge of 1,637,138 Class P Warrants to
purchase shares of common stock, $.01 par value per share, of VVI (the
"Warrants"), and MW is willing to pledge said securities to VVI.
NOW, THEREFORE, for good and valuable consideration, Pledgor hereby
agrees with Secured Party as follows:
a. Definitions. As used herein, the following terms shall have the
following meanings:
(a) "Pledged Securities" shall mean the Warrants, any shares
of common stock of VVI issuable upon exercise of the Warrants, and any
securities issued in exchange or in substitution, for the Warrants or
shares or as stock dividends thereon, and any and all proceeds of any
of the foregoing.
(b) "Obligations" shall mean the the obligation of MW under
paragraph 10(b) of the Restated Operating Agreement to place
$20,000,000 of advertising through VVI, all as set forth in the
Restated Operating Agreement.
b. Security Interest. As collateral security for the payment and
performance of the Obligations, Pledgor hereby pledges to Secured Party and
grants to Secured Party a security interest in and to the Pledged Securities.
c. Deliveries to Secured Party.
(a) Concurrently with the execution of this Pledge Agreement,
Pledgor hereby delivers to Secured Party certificates representing the
Pledged Securities, with duly executed stock powers attached, endorsed
in blank.
(b) If Pledgor shall become entitled to receive or shall
receive any certificate representing stock issued in exchange for, in
substitution of, or as a stock dividend on any of, the Pledged
Securities, Pledgor agrees to deliver the same promptly to Secured
Party with the endorsement of Pledgor or with duly executed stock
powers endorsed in blank, to be held by Secured Party as further
security for the Obligations. If Pledgor shall exercise any of the
Warrants, Pledgor shall deliver to Secured Party certificates
representing the shares issued upon exercise of the Warrants, together
with duly executed stock powers with respect thereto endorsed in blank.
d. Representations, Warranties and Agreements of Pledgor. Pledgor
hereby represents and warrants to, and agrees with, Secured Party as follows:
(a) Except for the security interest granted herein, Pledgor
is the owner of the Pledged Securities, free and clear of any and all
security interests, liens or other encumbrances.
(b) Pledgor has full power and authority to enter into this
Pledge Agreement and will defend the Pledged Securities against the
claims and demands of any persons or entities adverse to the claim of
Secured Party.
(c) Until the Obligations shall be paid and discharged in
full, the Pledged Securities shall remain free and clear of any and all
security interests, liens and other encumbrances, except the security
interest granted herein.
(d) Pledgor will reimburse Secured Party for all costs,
expenses and fees, including reasonable attorneys' fees, incurred by
Secured Party in enforcing the security interest granted herein.
(e) Pledgor will, at any time and from time to time, execute
such further instruments, documents, financing statements and other
writings, and do such other acts and things as Secured Party shall deem
necessary or advisable to effect the purposes of this Pledge Agreement.
e. Default; Remedies. Upon the occurrence of any default in payment of
the Obligations or any default hereunder, Secured Party shall have, in addition
to any other rights and remedies it may have, all of the rights and remedies of
a Secured Party under applicable law, including, without limitation, the right
to sell or otherwise dispose of and deliver the Pledged Securities at public or
private sale or to propose to retain the Pledged Securities in satisfaction of
the Obligations. The net proceeds of any such sale or other disposition shall be
applied first to the payment of the costs and expenses incurred in connection
with such sale or disposition or incidental to the care of safekeeping of the
Pledged Securities or in any way relating to the rights of Secured Party
hereunder, including reasonable attorneys' fees and legal expenses, and then to
the payment of the Obligations. Pledgor shall remain liable for any deficiency
remaining unpaid after such application. Pledgor agrees that ten (10) days'
notice of the time and place of any public sale or of the time after which a
private sale or other intended disposition is to take place is reasonable
notification of such matters.
f. Transfers by Pledgor. Except as permitted in paragraph 7 hereof,
Pledgor shall not sell, assign, transfer or otherwise dispose of, grant any
option with respect to, or mortgage, pledge or otherwise encumber the Pledged
Securities or any interest therein. Except as provided in paragraph 7, the event
of a sale, assignment, transfer or other disposition of or mortgage, pledge or
other encumbrance of the Pledged Securities, the Pledged Securities so sold,
assigned, transferred or otherwise disposed of or mortgaged, pledged or
otherwise encumbered shall remain subject to the provisions of this Pledge
Agreement, and the purchaser, assignee, transferee or other acquiror, mortgagee
or pledgee shall agree in writing, in form and substance reasonably satisfactory
to Secured Party, to be bound by all the terms of this Pledge Agreement with the
same force and effect as if such transferee were a party hereto.
g. Partial Releases. As long as no Event of Default (as defined in the
Restated Operating Agreement) shall have occurred with respect to the
Obligations and be continuing, Secured Party shall from time to time make a
partial release of the Pledged Securities to enable Pledgor to sell such Pledged
Securities provided that all net proceeds from the sale of any Pledged
Securities (net of income taxes payable by virtue of the sale of such Pledged
Securities) shall be applied to the payment of the Obligations. In addition, at
the end of each one year period, commencing on the first anniversary of the date
hereof and on each succeeding anniversary, Secured Party shall release from this
Security Agreement a number of the Pledged Securities which bears the same ratio
to the original total number of Pledged Securities as the amount of the
Advertising Commitment expended by MW during the year then ended bears to
$20,000,000.
h. Rights. Unless and until an Event of Default shall have occurred
hereunder or under the Restated Operating Agreement with respect to the
Obligations, Pledgor shall be entitled to exercise all voting rights with
respect to the Pledged Securities and shall be entitled to receive all dividends
and distributions thereon.
i. Term. This Pledge Agreement and the security interest created hereby
shall remain in full force and effect until all of the Obligations shall have
been paid and performed in full, at which time this Agreement shall terminate
and the Pledged Securities shall be returned to Pledgor.
j. Miscellaneous.
(a) The various headings of this Pledge Agreement are inserted
for convenience only and shall not affect the meaning or interpretation
of this Pledge Agreement or any provision hereof.
(b) No right or remedy provided for herein is intended to be
exclusive of any other right or remedy, but every such right or remedy
shall be cumulative and shall be in addition to every other right or
remedy herein granted or now or hereafter existing at law of in equity.
(c) No failure or delay on the part of Secured Party in the
exercise of any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or
remedy preclude other or further exercise or the exercise of any other
right or remedy.
(d) This Pledge Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective legal
representatives, successors and assigns.
(e) If any provision hereof shall be deemed invalid or
unenforceable, such invalidity or unenforceability shall not affect the
validity and enforceability of any other provision hereof.
(f) This Pledge Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
(g) No change, amendment or modification of this Pledge
Agreement shall be valid unless the same shall be in writing and signed
by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Pledge
Agreement on the date first written above.
MONTGOMERY WARD & CO., INCORPORATED
By:____________________________________
Vice President
VALUEVISION INTERNATIONAL, INC.
By:____________________________________
Vice President
EXHIBIT 10(b)
AGREEMENT
THIS AGREEMENT is made as of July 27, 1996 among Merchant Advisors,
Limited Partnership, a Delaware limited partnership ("MALP"), Montgomery Ward &
Co., Incorporated, an Illinois corporation ("MW") and ValueVision International,
Inc., a Minnesota corporation ("VVI").
R E C I T A L S
A. Pursuant to a Restructuring Agreement of even date herewith between
MW and VVI (the "Restructuring Agreement"), it is contemplated that MW and VVI
will restructure their existing business relationship, and that a subsidiary of
VVI will acquire all of the assets of Montgomery Ward Direct, L.P., a Delaware
limited partnership.
B. MALP, MW and VVI are all of the partners of Merchant Partners,
Limited Partnership ("MPLP").
C. It is contemplated that upon the closing of the transactions
contemplated by the Restructuring Agreement, the parties will make additional
capital contributions to MPLP. In the case of MW and VVI, these capital
contributions will take the form of Series P Warrants of VVI to purchase shares
of VVI at a purchase price of $.01 per share (the "New Warrants"). In the case
of MALP, its capital contribution will take the form of cash or a promissory
note. Concurrently with the making of said capital contributions, they will
execute Amendment No. 3 to the First Amended and Restated Limited Partnership
Agreement of MPLP, substantially in the form attached hereto as Exhibit A (the
"Amendment").
D. The parties desire to enter into this Agreement, for the purposes of
agreeing to execute the Amendment and determining the amounts to be set forth in
paragraph 3 of the Amendment.
A G R E E M E N T S
NOW, THEREFORE, the parties agree as follows:
1. On the date of closing of the acquisition of the assets of MWD as
contemplated by paragraph 1 of the Restructuring Agreement (the "MWD Closing
Date"), the parties hereto shall execute and deliver the Amendment, and make the
capital contributions contemplated thereby.
2. For the purposes of determining the values of the capital
contributions of MW and VVI, as set forth in paragraph 3 of the Amendment, the
number of warrants to be contributed by MW and VVI, respectively, to MPLP shall
be multiplied by the last sale price of VVI's shares, as quoted on NASDAQ, on
the MWD Closing Date.
3. In order to determine the amount of the capital contribution of MALP
for the purposes of the Amendment, the total value of the capital contributions
of MW and VVI, as determined pursuant to the preceding paragraph, shall first be
computed (the "Limited Partner Capital Contributions"). The capital contribution
of MALP to MPLP shall be equal to .625% of the amount of the Limited Partner
Capital Contributions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MERCHANT ADVISERS, LIMITED PARTNERSHIP
By: Merchant Development Corp., general partner
By: /s/ Raymond L. Bank
--------------------------------
Raymond L. Bank
President
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ John Workman
-------------------------------------
John Workman
President
VALUEVISION INTERNATIONAL, INC.
By: /s/ Robert L. Johander
-------------------------------------
Robert L. Johander
President
EXHIBIT 11
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
Computation of Net Income (Loss) Per Share
Three Months Ended July 31,
----------------------------
1996 1995
------------ ------------
Net income (loss) $ 145,444 $ (571,443)
============ ============
Weighted average number of common
shares outstanding 29,576,724 28,001,426
Shares assumed to be issued upon the
exercise of common stock options and
warrants under the treasury stock method -- --
------------ ------------
Weighted average number of common
shares and common equivalent shares
outstanding 29,576,724 28,001,426
============ ============
Net income per common and dilutive
common equivalent shares $ 0.00 $ (0.02)
============ ============
Six Months Ended July 31,
----------------------------
1996 1995
------------ ------------
Net income (loss) $ 16,598,854 $ (353,701)
============ ============
Weighted average number of common
shares outstanding 29,464,430 27,996,730
Shares assumed to be issued upon the
exercise of common stock options and
warrants under the treasury stock method 532,146 --
------------ ------------
Weighted average number of common
shares and common equivalent shares
outstanding 29,996,576 27,996,730
============ ============
Net income per common and dilutive
common equivalent shares $ 0.55 $ (0.01)
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 26,372,637
<SECURITIES> 48,036,705
<RECEIVABLES> 8,234,328
<ALLOWANCES> 0
<INVENTORY> 10,326,167
<CURRENT-ASSETS> 97,723,173
<PP&E> 12,011,779
<DEPRECIATION> 0
<TOTAL-ASSETS> 142,767,601
<CURRENT-LIABILITIES> 22,333,230
<BONDS> 0
0
0
<COMMON> 298,883
<OTHER-SE> 120,829,743
<TOTAL-LIABILITY-AND-EQUITY> 143,767,601
<SALES> 47,128,421
<TOTAL-REVENUES> 47,128,421
<CGS> 28,011,710
<TOTAL-COSTS> 20,594,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,644,854
<INCOME-TAX> 11,046,000
<INCOME-CONTINUING> 16,598,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,598,854
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
